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OUTLINE    STUDY 


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POLITICAL   ECONOMY. 


BY 

GEORGE   M.  STEELE,  LL.D., 

PRINCIPAL   OF   THE    WESLEYAN    ACADEMY,    VVILERAHAM,   MASS. 


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NEW  YORK: 
CHAUTAUQUA     PRESS. 

C.  L.  S.  C.  DEPARTMENT 
1886. 


146342 


Copyright,  1SS5, 

By    PHILLIPS    &    HUNT, 

805  Broadway,  New  York. 


The  required  books  of  the  C.  L.  S.  C.  are  recommended  by 

■■'■  'a'  Counmh  of'  /iV.      'Jt   fiiHst;   hoTi^ev^r.,: -bl   -understood  that 

.  ■    r&cninmendaiion  does,  not  involve  an  approval  by  the  Council, 

."*•..'•':  '-<ik\by  ■atiy.nihf{bh'.'&'-^''Oftf''''»'^'>'y''P^^^^         vr.'doctritie  con- 


tained in  the  book  recotnmended. 


KLECTROTVPED   AND   PRINTED 

BY    RANU,   AVERY,   AND    COMPANY, 

BOSTON. 


\s\ 


TO    THE 

Alumni  of  tijc  Eatorcnce  ClXniticrsi'to  of  ^ISHi'sconsin, 

AND   ESPECIALLY 

TO  THE  GRADUATES  OP  THE  YEARS  1874  TO  1879. 

WHO,   WITH   THE   AUTHOR, 

PURSUED  THE  STUDY  OF  THE  SCIENCE,  THE  RUDIMENTS  OF 
WHICH    ARE    HEREIN    SET   FORTH, 

STfjis  ILtttIc  Folume 

IS   AFFECTIONATELY    INSCRIBED. 


"  Man,  the  molecule  of  society,  is  the  subject  of  social  science.  .  .  . 
Ilis  greatest  need  is  that  of  Association  with  his  fellow-men."  "  As- 
sociation depends  upon  Individuality.     There  can  be  no  association 

without  differences."  —  Carev. 

"  The  higher  a  living  being  stands  in  the  order  of  nature,  the  greater 
the  difference  between  its  parts,  and  between  each  part  and  the  whole 
organism.  The  lower  the  organism,  the  less  the  difference  between 
the  parts,  and  between  each  part  and  the  whole." — Goethe. 

"For  the  body  is  not  one  member,  but  many."  "  Many  members, 
yet  but  one  body."  "Those  members  of  the  body  which  seem  to  be 
more  feeble  are  necessary."  "  And  whether  one  member  suffer,  all 
the  members  suffer  with  it ;  or  one  member  be  honored,  all  the  mem- 
bers rejoice  with  it."  —  Paul. 


PREFACE. 


This  volume  is  designed  to  meet  the  wants  of  younger 
students,  and  those  who  have  not  had  long  discipline  in 
severer  studies.  The  fault  with  many  of  our  elementary 
books  on  Political  Economy  has  been,  that  they  are  con- 
densations, rather  than  simplifications,  of  the  subject.  In 
such  a  study  as  this,  where  the  great  value  lies  in  the  illus- 
trations, it  is  not  easy  to  present  the  principles  briefly,  and 
at  the  same  time  to  exhibit  clearly  their  practical  applica- 
tion. Yet  this  has  been  the  special  aim  here,  while  at  the 
same  time  great  care  has  been  taken  to  preser\'e  the  scien- 
tific form.  Whether  the  writer  has  succeeded  in  accom- 
plishing his  purpose,  it  is  for  the  public  to  determine.  It 
is  hoped,  however,  that  the  increasingly  large  number  of 
students  in  the  home  college,  and  the  students  in  our 
academies  and  high  schools,  as  well  as  the  general  reader, 
will  find  in  this  short  treatise  both  an  interesting  and  a 
valuable  aid  in  the  attainment  of  information  on  a  subject 
always  of  universal  importance,  and  never  more  so  than  at 
the  present  time. 


VI  PREFACE. 

It  has  been  the  purpose,  on  the  numerous  controverted 
points,  to  set  forth  clearly  both  sides  of  the  subject,  while 
there  is  no  attempt  to  conceal  the  convictions  of  the  writer. 

The  author  has  drawn  largely  upon  the  works  of  Henry 
C.  Carey.  In  respect  to  the  labor-question  he  is  specially 
indebted  to  Professor  Francis  k.  Walker's  able  treatises. 
The  late  Professor  Jevons  has  furnished  valuable  aid  on  the 
Instrument  of  Exchange.  Other  writers  are  cited  as  occa- 
sion has  demanded. 


CONTENTS. 


INTRODUCTORY   CHAPTER. 

DEFINITIONS   AND   PRELIMINARY   STATEMENTS. 

PAGB 

Relation  of  Social  Science  to  Political  Economy.  —  2.  Wealth. 
—  3.  Value:  general  notion.  —  4.  Chief  element  of  value; 
cost  of  production.  —  5.  Capital  as  pre-existent  labor  an  ele- 
ment in  value.  E.xertion  and  abstinence.  —  6.  Utility  an  es- 
sential characteristic  of  value.  Definition.  When  more  or 
less  prominent.  —  7.  Utility  not  the  measure  of  value.  Some- 
times in  an  inverse  ratio.  Full  definition  of  value.  —  8. 
Further  consideration  of  wealth.  Full  statement  of  its 
import.  —  9.  Man  the  proper  subject  of  Political  Economy, 
not  mere  material  wealth.  — 10.  Economy,  husbandry,  not 
parsimony.  Political  Economy  has  reference  to  man  in  so- 
ciety. Association  and  individuality  the  great  forces  of  civil- 
ized humanity. — 11.  General  divisions  of  the  subject  .     .    .       i 


Book  First.  —  Production. 


CHAPTER   I. 

PRODUCTIVE   AGENCIES. 

1.  Production  defined  and  illustrated.  Two  great  agencies, 
nature  and  man.  Man  furnishes  labor.  Nature  supplies 
(i)   materials,   (2)  forces.  —  2.    Labor   defined;    consists    in 

effecting  changes 9 

vii 


Viii  CONTENTS. 

CHAPTER    II. 

APPLICATION    OF   LABOR   TO   PRODUCTION. 

PACE 

1.  Application  of  labor,  direct  and  indirect.  Direct  labor  of 
three  kinds,  —  transformation,  transmutation,  and  transpor- 
tation.—  2.  Indirect  application:  more  obvious.    Five  kinds  : 

1.  Preparation  of  material;  2.  Manufacture  of  implements; 
3.  Providing  sustenance ;  4.  Furnishing  clothing,  shelter,  etc. ; 
5.  Protecting  the  laborers.  —  3.  Among  the  less  obvious 
forms  of  indirect  labor  are:  i.  Organizing,  superintending, 
etc.;  2.  The  rearing  of  children;  3.  Education;  4.  The  pro- 
fessions; 5.  Invention  and  discovery.  —  4.  Labor  not  the 
sole  condition  of  wealth.     Mind  and  character 14 

CHAPTER   III. 

PRODUCTIVE   AND   UNPRODUCTIVE   LABOR. 

1  Disagreement  among  writers.  —  2.  Several  kinds  of  effort  gen- 
erally  allowed   to   be  unproductive:    i.  Misdirected   labor; 

2.  That  of  which  the  ultimate  object  is  destructive ;  3.  All 
purely  speculative  projects;  4.  That  which  is  expended  in 
ministering  to  vicious  appetites 


20 


CHAPTER   IV. 

CAPITAL. 

1.  Capital  the  fruit  of  abstinence,  but  not  of  abstinence  alone. 
—  2.  A  capitalist  not  necessarily  a  rich  man.  Professor 
Bowen  on  the  beginnings  of  capital.  —  3.  Relation  of  capi- 
tal to  wealth.  —  4.  Wealth  which  is  not  capital.  —  5.  Fixed 
and  circulating  capital.  —  6.  Capital  must  be  consumed. — 
7.  Nearly  all  wealth  the  result  of  recent  production.  —  8. 
Change  of  circulating  into  fixed  capital.  —  9.  Effect  of  the 
invention  of  labor-saving  machinery 23 

CHAPTER   V. 

RELATIONS    OF    CAPITAL   AND    LABOR. 

1.  Generally  that  of  mutual  dependence.  —  2.  Capital  furnishes 
conditions  of  labor.     Doctrine  of  the  limitation  of  labor  by 


CONTENTS.  ix 

PAGE 

capital  subject  to  a  variety  of  modifications.  Still  true  in 
general  that  a  small  amount  of  capital  employs  a  small 
amount  of  labor.  —  3.  Effect  of  unproductive  expenditure 
of  the  rich  on  the  welfare  of  the  poor 31 

CHAPTER   VI. 

SOME   CONDITIONS    OF   HIGHEST   PRODUCTION. 

1.  Combination  and  division  of  labor.  Association  and  indi- 
viduality.—  2.  Combination  of  two  kinds,  simple  and  com- 
plex.—  3.  Diverse  processes  in  a  single  trade.  Vast  in- 
crease of  productive  power  thus  effected.  —  4.  Direct  bene- 
fits of  division  of  labor. — 5.  Limitations  to  division  of 
labor.  —  6.  Some  disadvantages 34 

CHAPTER   VII. 

CONDITIONS  OF  HIGHEST  PRODUCTION,  Continued. 

1.  Diversification  of  industry.  This  diversification  as  far  as 
possible  in  each  community.  —  2.  Diverse  tastes  and  apti- 
tudes to  be  met,  otherwise  much  productive  force  lost.  —  3. 
Freedom  of  labor  and  commerce.  This  freedom  to  be 
real,  and  not  merely  theoretical.  The  largest  liberty  always 
under  some  restrictions.  —  4.  General  education,  a  great 
productive  power.  —  5.  Moral  character  an  important  con- 
dition     42 


Book  Second.  —  Consumption. 


CHAPTER   I. 

NATURE  AND  VARIOUS  FORMS  OF  CONSUMPTION. 

1.  Production  implies  consumption;  that  is,  the  destruction  of 
values.  —  2.  Re-appearance  of  the  value  destroyed,  in  other 
forms.  —  3.  Voluntary  or  involuntary 49 


X  CONTENTS. 

CHAPTER    II, 
PRODUCTIVE  AND   UNPRODUCTIVE   CONSUMPTION. 

PAGE 

1.  The  difference  not  always  easy  to  determine.  —  2.  Much  ob- 
viously unproductive.  —  3.  Necessaries,  conveniences,  and 
luxuries 53 

CHAPTER    III. 

PUBLIC    CONSUMPTION. 

1.  The  support  of  government.  —  2.  Principles  which  should  con- 
trol in  public  expenditure.  —  3.  Expenditure  for  general  edu- 
cation.—  4.  Pauperism.  —  5.  War  and  national  defence    .    .     57 


Book  Third.  —  Exchange. 


CHAPTER    I. 

PRINCIPLES    WHICH    FORM   THE    BASIS    OF   EXCHANGE. 

Definition  and  explanation. —  2.  How  related  to  association 
and  individuality.  —  3.  Exchange  between  remote  communi- 
ties.—4.  "Commerce"  and  "Trade."  Obstacles  to  direct 
exchange gc 

CHAPTER    II. 

THE   LAW   OF   EXCHANGE. 

Value  for  Value.  Reference  to  the  nature  of  value.  —  2.  Con- 
ditions  modifying  the  law.  No  general  rise  and  fall  of 
values.  —  3.  Supply  and  demand.  Terms  explained.  The 
general  principle  as  affecting  value. —  4.  Further  limitation 
of  these  terms.  —  5.  Mow  increase  of  supply  by  diminishing 
value  increases  demand.  —  6.  The  principle  modified  in  cases 
of  limited  production.  —  7.  The  law  still  further  modified 
by  other  circumstances 70 


CONTENTS.  XI 

CHAPTER    III. 

THE    PROMOTION    OF   COMMERCE. 

PAGE 

1.  Whatever  tends  to  promote  association  aids  commerce.  —  2. 
Benefit  of  rapid  and  immediate  exchange.  —  3.  Proximity  of 
producer  and  consumer.  Facilities  of  transportation.  —  4.  Va- 
riety of  products 77 

CHAPTER   IV. 

PROTECTION   AND   FREE   TRADE. 

1.  Design  of  a  protective  tariff.  Free  trade.  — 2.  Arguments  in 
favor  of  protection:  i.  Defence  against  unequal  competi- 
tion of  older  and  richer  societies ;  2.  A  steady  and  uniform 
market;  3.  Tends  to  societary  completeness;  4.  Advantage 
to  general  interests  other  than  those  directly  protected. 
Three  advantages  to  agriculture;  5.  Prevents  degradation 
of  labor 82 

CHAPTER   V. 

ARGUMENTS  IX  FAVOR  OF  FREE  TRADE. 

1.  Positive  arguments :  i.  Method  of  nature;  2.  Conserves  and 
increases  the  productive  power  of  labor;  3.  The  right  of 
property  implies  freedom  of  exchange  ;  4.  All  restriction  on 
commerce  between  two  nations  injures  the  interests  of  both; 
5.  Freedom  of  commercial  intercourse  tends  to  peace  and 
good-will  between  nations. —  2.  Objections  to  the  protective 
system:  i.  Violates  the  right  of  every  man  to  do  what  he 
will  with  his  own ;  2  Protective  duties  of  the  nature  of  a  tax 
upon  all  other  industries ;  3.  Diminishes  exports ;  4.  Infant 
industries  protected  never  come  to  maturity;  5.  If  good  be- 
tween nations,  why  not  between  different  parts  of  the  same 
nation,  as  in  the  United  States?  6.  Gives  monopoly  priv- 
ileges. —  3.  Comparative  strength  of  arguments  on  both  sides. 
Argument  from  fear  of  degradation  of  labor.  —  4.  Force  of 
argument  from  success  of  free  trade  between  parts  of  a  large 
nation.  —  5.  Free  trade  as  the  "method  of  nature."  —  6.  Ex- 
amination of  the  objection  that  protective  duties  are  of  the 


xii  CONTENTS. 

PAGE 

nature  of  a  tax.  —  7.  Do  protective  duties  cause  diminution 

of  exports?  —  8.  Brief  summary  of  results 90 

CHAPTER   VI. 

THE   INSTRUMENT   OF   EXCHANGE. 

1.  Money  the  means  of  enhancing  the  facility  of  association. — 
2.  Original  exchange  by  barter.  Its  inconveniences.  Trade 
a  partial  remedy 103 

CHAPTER   VII. 

THE   PRECIOUS    METALS. 

1.  Eight  characteristics  desirable  in  any  substance  used  as  a  me- 
dium of  exchange.  These  found  to  a  considerable  extent  in 
gold  and  silver,  though  not  all  of  them  to  the  full  extent 
sometimes  claimed.  —  2.  Why  these  metals  are  used  for  this 
purpose.  Coinage.  —  3.  Relation  of  government  to  money. 
Legal  tender.  —  4.  Monetary  standard.  —  5.  Relative  value 
of  gold  and  silver 105 

CHAPTER   VIII. 

CERTAIN   DOCTRINES    CONCERNING   MONEY   EXAMINED. 

1.  Money  not  synonymous  with  wealth.  —  2.  Value  of  money  in 
circulation  only  a  small  fraction  of  that  of  the  commodities 
exchanged.  —  3.  Relation  of  the  amount  of  money  to  gen- 
eral prices 112 

CHAPTER    IX. 

THE  CREDIT  ELEMENT  IN  THE  INSTRUMENT  OF 
EXCHANGE. 

1.  Money  only  a  minor  proportion  of  the  machinery  of  exchange. 
—  2.  Early  suggestion  of  credit.  Book  account.  Transfer 
of  credit.  —  3.  Definition  of  credit.  —  4.  Advantages  of  cred- 
it:  I.  To  capitalists;  2.  To  non-capitalists. —  5.  What  is 
loaned  frequently,  not  money,  but  other  capital  reckoned  as 
money  .,,,,,,    ^    ,,.,,,,    , 117 


CONTENTS.  XIU 

CHAPTER   X. 

BANKS   AND   BANKING. 

PAGE 

1.  Nature  and  history  of  banks. —2.  Origin  of  banks.  Banks 
of  deposit.  — 3.  Banks  in  relation  to  credit.  — 4.  Abridg- 
ment of  tlie  use  of  money  by  bank-checks  and  drafts.  —  5. 
The  clearing-house.  —  6.  How  commodities  pay  for  com- 
modities through  the  facilities  afforded  to  credit  by  means 
of  banks.  —  7.  Four  kinds,  or  functions,  of  banks.  Savings 
banks  described.  Their  advantages.  —  8.  Banks  of  discount 
and  loan.  —  9.  Banks  of  issue  or  circulation.  — 10.  Banks 
deal  not  so  much  in  money  as  in  debits  and  credits. 
Small  proportion  of  money  used  in  large  banking-transac- 
tions       122 

CHAPTER   XI. 

PAPER   CURRENCY    OF   THE   UNITED    STATES. 

1.  National -bank  system.  — 2.  Government  notes,  or  "green- 
backs." —  3.  Advantages  and  disadvantages  of  a  paper  cur- 
rency     ^TtT) 


Book  Fourth.  —  Distribution. 


CHAPTER    I. 

GENERAL   STATEMENT. 

1.  Definition  and  illustration.  — 2.  Difficulty  of  determining  the 
just  proportions  of  product  to  each  producer.  —  3.  General 
division  of  subject:  i.  Wages;  2.  Profit;  3.  Interest;  4. 
Rent;  5.  Taxes I39 

CHAPTER    II. 

wages:  general  view. 

1.  Limitation  of  term.  Wages,  salary,  fees,  etc.  —  2.  Theory 
of  a  laboring-class.  "  Wages-fund."— 3.  Objections  to  the 
phrase,  "  laboring-class."  —  4.  Minimum  rate  of  wages  .    .    .144 


XIV  CONTENTS. 

CHAPTER    III. 

WAGES   AS    AFFECTED    BY    VARIOUS    CIRCUMSTANCES. 

PAGE 

1.  Nominal  and  real  wages. — 2.  Conditions  to  be  taken  note  of 
in  estimating  real  value  of  wages.  —  3.  Wages  also  affected 
by  character  of  the  labor.  —  4.  Influence  of  the  industrial 
system  of  a  community  as  affecting  wages 147 

CHAPTER    IV. 

HIGH   AND    LOW    WAGES    AS    RELATED   TO    DEAR   AND 
CHEAP   LABOR. 

1.  Labor  dear  or  cheap  according  as  there  is  a  larger  or  smaller 
amount  of  product  for  a  given  amount  of  wages.  —  2.  Theory 
of  necessary  rate  of  wages  as  affecting  prospect  of  improve- 
ment in  condition  of  laborers.     E.  P.  Smith's  views  .    .     .     .150 

CHAPTER   V. 
"THE  WAGES-FUND." 

1.  If  the  theory  is  correct,  no  improvement  for  the  laborer  except 
in  the  restriction  of  the  population.  —  2.  Relation  of  wages 
to  product.  —  3.  F.  A.  Walker's  views.  Wages  not  paid  out 
of  capital,  but  out  of  product 153 

CHAPTER   VI. 

CAREY'S    LAW    OF   THE    INCREASE   OF    WAGES. 

1.  As  society  advances,  there  is  an  increase  of  the  laborers',  and 
a  decrease  of  the  capitalists',  proportion  of  the  joint  product 
of  labor  and  capital ;  while  there  is  to  both  an  increased 
amount.  —  2.  Illustration  from  the  beginnings  of  capital 
with  the  savage.  —  3.  Axe  of  stone,  of  bronze,  of  iron,  of 
steel.  —  4.  Corroborated  by  facts 156 

CHAPTER    VII. 

REMEDIES   FOR    LOW    WAGES. 

1.  Possibility  of  remedies.  —  2.  Can  Government  do  anything.!* 
What  it  cannot  and  what  it  can  do. — 3.  "Strikes."     Good 


CONTENTS.  XV 

PAGE 

and  evil  of  them.  —  4.  "Trades-unions."  Two  objects  of 
these.  Economical  and  uneconomical  measures.  —  5.  Co- 
operative association.  Its  methods.  —  6.  Difficulties  in  the 
way  of  it.  Importance  of  the  otifice  of  an  employer.  —  7. 
Coparttiership  of  industry.  Its  method  and  advantages. 
Harmony  with  principles  previously  laid  down.  —  8.  The 
wages  of  women i6o 

CHAPTER   VIII. 

PROFITS. 

1.  Portion  of  product  going  to  the  employer.  The  latter  not 
necessarily  a  capitalist.  —  2.  Economy  of  conceding  to  an 
employer  a  larger  proportion  of  the  product  than  to  a 
common  or  even  a  skilled  laborer.  —  3.  The  risk  and  un- 
certainty of  business  an  element  to  be  considered  in  calcu- 
lating the  claim  of  profits.  Profits  not  in  conflict  with 
wages.  —  4.  Patent  and  copy  rights.  Their  significance  and 
economy 170 

CHAPTER    IX. 

INTEREST. 

1.  Extent  of  its  signification.  — 2.  Rate  of  interest,  on  what  it 
depends:  i.  Amount  of  money  in  circulation;  2.  Profits  of 
business ;  3.  Scarcity  or  uncertainty  of  capital ;  4.  Facility 
of  re-conversion  of  evidences  of  debt 174 

CHAPTER   X. 

RENT. 

1.  Rent  in  this  country  as  compared  with  the  same  in  Europe. 
Relation  to  the  value  of  land.  —  2.  Importance  of  land.  —  3. 
What  constitutes  value  in  land.'  Doctrines  of  the  British 
economists.  H.  C.  Carey's  views.  —  4.  Ricardo's  theory  of 
rent.  —  5.  Consequences  of  the  theory.  —  6.  Influences  which 
retard  the  operations  of  the  law.  —  7.  The  theory  compared 
with  facts  of  history. — 8.  The  fallacy  in  the  theory.     The 


xvi  CONTENTS. 

PAGE 

most  productive  soils  not  first  occupied.  —  9.  True  theory 
of  value  of  land.  The  same  as  the  value  of  other  things. 
— 10.  Rent  or  value  of  land  affected  by  various  minor 
considerations:  i.  Fertility;  2.  Facility  of  cultivation;  3. 
Situation i?? 

CHAPTER   XI. 

TAXATION. 

1.  Under  the  principle  of  division  of  labor,  there  must  be  some 
agency  for  the  protection  of  the  laborer.  Government  and 
its  relation  to  production.  —  2.  Economy  of  taxation.  —  3. 
Whether  taxation  should  be  according  to  property  or  rev- 
enue. —  4.  Uniformity  of  taxation  practically  impossible 
and  uneconomical.  —  5.  Direct  and  indirect  taxation. — 6. 
Comparative  merits  of  the  two  methods.  —  7.  Forms  of 
direct  taxation  :  i.  Income-tax  ;  2.  Assessment  of  total 
property.  Faults  of  any  system  yet  devised.  —  8.  Other 
methods  proposed 1S8 


Political    Economy. 


INTRODUCTORY   CHAPTER. 

DEFINITIONS   AND   PRELIMINARY   STATEMENTS. 

1.  Social  Science  treats  of  the  natural  laws  which  govern 
men  in  their  relations  to  each  other.  Political  economy  is 
the  application  of  that  portion  of  these  laws  which  pertain 
to  the  production  and  distribution  of  wealth. 

2.  It  is  important  to  understand  what  is  meant  by  wealth. 
Writers  differ  greatly  concerning  its  definition  ;  but  they  all 
agree,  by  implication  at  least,  in  making  value  an  essential 
characteristic  of  the  objects  symbolized  by  this  term.  It 
will,  then,  be  necessary,  before  going  on  to  a  final  determina- 
tion of  the  signification  of  wealth,  to  ascertain  the  meaning 
of  value. 

3.  As  this  is,  in  some  respects,  the  most  important  word 
in  political  economy,  it  is  desirable  to  get  a  clear  apprehen- 
sion of  what  it  implies.  Value  is  a  relative  term,  having 
reference  to  the  quantity  of  one  commodity  which  may  be 
equitably  exchanged  for  a  given  quantity  of  another.  Thus 
a  bushel  of  wheat  may  be  given  for  two  bushels  of  oats, 
or  a  cord  of  wood  for  twenty  yards  of  cotton  cloth.     But, 


2  POLITICAL   ECONOMY. 

in  every  instance  of  relationship,  there  must  be  some  ground 
of  the  relation.  The  determination  of  this  is  essential  to  an 
adequate  definition. 

4.  The  chief  element  in  the  value  of  any  thing,  and  that 
which  constitutes  its  original  standard,  is  the  cost  of  its  pro- 
duction ;  and  by  cost,  we  mean  the  labor  involved.  Labor 
may  be  defined  as  the  voluntary  effort  put  forth  by  man  to 
secure  some  desired  object.  But  when  we  say  that  value  is 
estimated  by  the  amount  of  labor  necessary  to  produce  an 
article,  some  care  is  required  lest  the  statement  mislead.  It 
is  not  the  amount  of  labor  actually  expended  in  the  produc- 
tion which  measures  the  value.  A  yard  of  cotton  cloth  made 
a  hundred  years  ago  involved  the  labor,  perhaps,  of  several 
days  ;  but  its  value,  if  now  in  the  market,  would  be  less  than 
that  of  the  same  commodity  of  the  present  day,  which  in- 
volves the  labor  of  not  a  tenth  part  as  much  time.  It  is, 
then,  the  labor  which  would  be  required  to  reproduce  or 
replace  an  article,  which  determines  its  value. 

5.  But  when  we  speak  of  labor  as  the  principal  ground  of 
the  relation  which  we  denominate  value,  it  is  not  labor  in 
the  form  of  immediate  exertion  alone  that  is  meant.  A 
large  part  of  the  labor  which  creates  value  is  implied  in  the 
existence  of  tools  and  implements,  and  other  contrivances. 
These  constitute  capital.  This  has  sometimes  been  called 
"  pre-existent  labor."  It  will  be  sufficient  for  our  present 
purpose  to  define  it  as  the  result  of  previous  labor,  employed 
in  furiJier  production. 

The  design  of  all  labor  is  to  secure  objects  for  the  grati- 
fication of  desire.  Now,  this  gratification  may  be  imme- 
diate, or  it  may  be  postponed  for  the  sake  of  some  greater 
gratification.  In  other  words,  the  objects  secured  by  labor 
may  be  consumed  at  once,  or  they  may  be  wholly  or  partly 
reserved  for  use  in  securing  other  objects.     All  that  is  thus 


DEFINITIONS.  3 

reserved  is  of  the  nature  of  capital.  It  is  the  result  of  labor ; 
but  the  point  to  be  observed  is,  that  its  existence  is  due,  not 
to  labor  alone,  but  to  abstinence  as  well,  ^^'e  thus  arrive  at 
a  modified  form  of  our  statement  concerning  value  ;  namely, 
that  it  is  estimated  by  the  amount  of  sacrifice  involved  in 
the  production  of  a  commodity ;  and  that  this  sacrifice  is 
of  two  kinds,  —  exertion  and  abstinence. 

6.  But  there  is  another  essential  characteristic  of  value, 
which  involves  a  further  modification  of  our  definition  ;  this 
is  utitity.  It  has  sometimes  been  confounded  with  value, 
and  some  writers  speak  of  it  as  value  in  use.  But  it  is 
clearly  a  distinct  element.  It  may  be  defined  as  comprising 
all  tiiose  qualities  in  objects  which  make  them  desirable.  It 
will  be  readily  seen  that  there  are  some  things  which  have 
the  greatest  utility,  and  at  the  same  time  have  little  or  no 
value  :  they  are  such  objects  as  cost  nothing ;  that  is,  such 
as  involve  no  labor  in  their  production.  Thus  air  and  sun- 
shine, and,  to  a  great  extent,  water,  ordinarily  cost  nothing ; 
and  yet  they  are  of  the  highest  utility.  It  is  often  the  case, 
that  the  utility  of  articles  is  almost  inversely  as  their  value. 
Iron  is  of  very  small  value  as  compared  with  gold,  and  gold 
is  of  equally  small  utitity  as  compared  with  iron.  Tliat  utility 
is  essential  to  value,  is  evident  from  the  fact  that  no  one 
would  make  any  sacrifice  for  an  object  which  would  gratify 
no  desire.  Yet  the  prominence  of  this  element  in  the  de- 
termination of  value  varies  widely  :  sometimes  it  is  para- 
mount, at  other  times  its  influence  is  so  feeble  as  to  be 
scarcely  perceptible.  When  a  man  buys  a  barrel  of  flour, 
he  expects,  under  ordinary  circumstances,  to  pay  a  price 
somewhere  nearly  corresponding  to  the  cost  of  its  production. 
The  utility,  though  maintaining  an  essential  influence,  is  not 
palpably  considered.  But  suppose  some  extraordinary  con- 
ditions, by  means  of  which  there  is  not  more   than  flour 


4  POLITICAL   ECONOMY. 

enough  in  the  market  to  supply  one-third  of  the  demand, 
and  that  no  more  can  be  had  for  several  weeks,  or  perhaps 
months.  Those  who  have  plenty  of  means  will  offer  prices 
which  are  far  out  of  proportion  to  the  cost  of  production, 
and  which  will  be  measured  almost  wholly  by  the  intensity 
of  desire  for  the  article.  A  man  of  means  will  pay  several 
times  the  natural  value  of  the  commodity,  rather  than  let 
his  family  suffer.  It  is  obvious,  that,  in  such  a  case,  utility, 
and  not  labor,  becomes  the  paramount  element  in  the  de- 
termination of  value. 

7.  But  it  is,  after  all,  doubtful  if  utility  is  a  radical  element 
in  the  measurement  of  value.  It  unquestionably  has  much 
to  do  in  its  temporary  modification,  through  various  disturb- 
ing influences  operating  upon  the  market.  But  it  can  hardly 
be  regarded  as  in  any  proper  sense  a  standard  by  which  to 
estimate  value. 

Value  and  utility  are  often  found  in  the  inverse  ratio  of 
each  other  ;  that  is,  as  value  increases,  utility  diminishes,  and 
vice  versa.  But  it  is  not  correct  to  say  that  this  is  always 
the  case.  If  it  were,  infinitude  of  value  would  imply  zero 
of  utility.  But,  as  we  have  seen,  an  object  destitute  of 
utility  can  have  no  value.  Mr.  Carey's  description  of  the 
two  is,  that  "  the  utility  of  things  is  the  measure  of  man's 
power  over  nature  ;  "  while  value  is  "  the  measure  of  nature's 
power  over  man,"  or  of  "  the  resistance  which  nature  makes 
to  man."  These  statements,  while  not  altogether  adequate 
as  definitions,  imply  profound  philosophical  truths. 

This,  then,  I  would  present  as  a  proper  and  final  definition 
of  value  :  Man's  estimate  of  the  amount  of  sacrifice  requisite 
to  the  attainment  of  a  desired  object. 

8.  We  may  now  return  to  the  subject  of  wcaltli.  If  we 
regard  wealth  as  comprising  all  things  that  have  value,  we 
shall  not  be  far  out  of  the  way.     But  at  this  point  we  meet  a 


DEFINITIONS.  5 

conflict  of  opinions  among  economists.  Many,  and  perhaps 
a  majority,  of  writers  limit  the  term  to  material  things. 
They  make  no  account,  in  this  respect,  of  those  mental  and 
moral  acquisitions  which  constitute  so  large  a  proportion  of 
the  means  of  enjoyment  and  prosperity  to  humanity.  The 
maker  of  a  violin  is  in  possession  of  an  article  which  is  to 
him  a  portion  of  wealth.  But  the  skill  and  talent  of  Paga- 
nini,  or  Ole  Bull,  or  any  inferior  musician  who  can  so  use 
the  instnmient  as  to  gratify  the  popular  taste,  are  not,  on 
that  account,  reckoned  by  these  writers  as  of  any  value  in 
an  economical  sense ;  nor  do  these  abilities  constitute  any 
part  of  the  wealth  of  the  community.  Yet  without  this 
competence  residing  in  some  person,  the  violin  could  have 
no  value.  The  same  may  be  said  concerning  the  abilities  of 
various  other  classes  who  have  acquired  power  to  minister  to 
the  gratification  of  human  desires.  These  are  conditioned 
on  labor,  just  as  any  kind  of  wealth  is ;  and  their  utilities 
are  not  only  just  as  real  as  those  of  material  objects,  but 
they  are  vastly  more  extensive.  Without  them,  there  would 
be  no  wealth  worthy  the  name. 

These  considerations  lead  to  the  following  definition : 
Wealth  compi'ises  all  those  useful  things  and  qualities,  the 
attainment  of  which  involves  sacrifice  on  the  part  of  man.  As 
value  implies  a  certain  degree  of  resistance  to  man  on  the 
part  of  nature,  so  wealth  implies  in  man  a  certain  degree 
of  power  over  nature.  Hence  Mr.  Carey's  statement,  that 
wealth  is  "  the  power  to  command  the  always  gratuitous 
services  of  nature."  When  man  is  at  his  weakest,  socially 
or  individually,  nature  does  nothing  for  him.  Every  infant, 
if  dependent  on  nature  alone,  would  inevitably  perish.  In 
the  infancy  of  society,  it  is  only  by  the  most  strenuous  exer- 
tion that  a  precarious  subsistence  is  secured.  But,  with  every 
increment  of  power  in  man,  nature  multiplies  her  services. 


O  POLITICAL    ECONOMY. 

They  are  not  bought,  but  freely  given,  and  given  as  soon  as 
man  is  able  to  command  them.  In  the  most  advanced  civ- 
ilization, the  forces  of  nature  have  become  so  subservient  to 
man,  that,  in  thousands  of  cases,  one  can  accomplish  what  a 
score,  or  sometimes  even  a  hundred,  could  not  formerly  have 
done.  It  is  this  increase  of  power,  more  than  that  of  ma- 
terial commodities,  which  constitutes  the  real  wealth  of  the 
world. 

9.  It  is  easy  to  see,  from  what  has  already  been  said,  that 
the  proper  subject  of  political  economy  is  man.  The  laws 
pertaining  to  the  underlying  science  are  found  in  the  character 
of  man,  —  his  tastes,  his  desires,  the  motives  influencing  him, 
and  the  limitations  to  which  he  is  subject.  The  results  ar- 
rived at  are,  his  happiness  and  prosperity,  his  freedom,  and 
his  mastery  over  nature.  This  view  differs  from  that  enter- 
tained by  many  writers.  With  them  it  is  regarded  as  the 
science  of  material  wealth,  and  man  is  treated  only  as  an 
important  incident.  Yet  social  science,  of  which  political 
economy  is  an  art,  if  it  exist  at  all,  is  a  science  of  man,  and 
not  of  his  accidents  or  appurtenances. 

10.  The  word  economy  is  from  a  Greek  compound,  and 
is  nearly  equivalent  to  our  Saxon  word  husbandry.  It  has 
reference  to  the  prudent  management,  by  a  householder,  of 
his  means,  so  as  to  secure  the  largest  possible  advantage  for 
himself  and  his  family.  It  is  hardly  necessary  to  remark, 
that  economy  is  not  the  same  as  parsimony  or  frugality.  It 
does  not  consist  in  mere  abstinence  for  the  sake  of  saving. 
It  is  rather  a  wise  use  of  means  and  forces,  so  as  to  make 
them  productive  of  the  largest  desired  results. 

Political  economy,  as  the  name  implies,  has  reference  to 
man  in  society,  and  not  as  an  individual.  One  of  man's 
greatest  needs  —  perhaps  his  very  greatest  —  is  that  of  asso- 
ciation.    The  solitary  individual  is  only  a  minute  constituent 


DEFINITIONS.  7 

of  man,  in  man's  relation  to  the  great  purposes  of  life. 
Separated  from  his  fellows,  he  would  be,  even  in  his  indi- 
vidual capacity,  but  a  small  fraction  of  what  he  is  when 
associated  with  them.  No  man  is  complete  in  himself. 
Each  individual  must  be  supplemented  by  others,  generally 
by  many  others,  and  find  a  large  part  of  his  own  compe- 
tence in  this  association.  Each  has  something  that  another 
lacks,  and  we  are  made  to  be  sources  of  mutual  supply  to 
our  several  wants. 

But  not  only  is  association  essential  to  man,  but  individic- 
ality  is  equally  essential.  A  superficial  thinker  might  regard 
these  two  characteristics  as  antagonistic.  The  fact  is  so 
far  other\vise,  that  each  of  them  is  actually  dependent  on 
the  other.  No  man  would  associate  with  another  unless  the 
one  had  something  which  the  other  wanted.  But  for  this, 
there  would  be  no  commerce.  Two  hatters  making  the 
same  kind  of  hats  would  neither  of  them  have  any  thing 
which  the  other  would  want.  Men  of  the  same  mental  habits 
and  requirements  could  not  benefit  one  another.  Men  must 
differ,  or  they  will  not  associate ;  and  the  greater  the  differ- 
ence, the  greater  the  association. 

On  the  other  hand,  it  is  only  by  association  that  the  indi- 
vidual advances,  and  the  highest  development  takes  place. 
By  such  advancement  and  development,  and  by  such  only, 
the  differences  among  men  become  great  and  numerous. 
In  the  lower  grades  of  humanity,  there  is  comparatively  little 
difference  between  individuals ;  and  there,  too,  the  associa- 
tion is  very  slight.  It  is  only  in  an  advanced  civilization 
that  a  strongly  marked  individuality  exists,  and  that  there 
are  those  numerous  differences  which  make  the  mutual 
dependence  the  greatest. 

11.  Having  given  this  brief  general  view  of  the  subject, 
and  defined  some  of  its  principal  terms,  we  may  now  pro- 


8  POLITICAL   ECONOMY. 

ceed  with  an  examination  of  the  principles  involved  in  it. 
The  subject  is  divided  into  four  great  branches,  as  fol- 
lows :  — 

I.  Production,  which  treats  of  the  creation  of  wealth. 
II.  Consumption,  which    treats    of   the    destruction    of 
wealth,  and  the  laws  which  govern  it. 

III.  Exchange,  which  comprises  the  forms  of  commerce, 
or  the  transfer  of  commodities  between  different  parties. 

IV.  Distribution,  which  has  reference  to  the  apportion- 
ment of  wealth  among  the  parties  who  produce  it. 


Book  First. 


PRODUCTION. 


CHAPTER  I. 

PRODUCTIVE   AGENQES. 

1.  Production  consists  in  rendering  the  utilities  of  nature 
available  to  man.  Some  of  these  are  furnished  spontane- 
ously, or  without  human  effort.  Others  require  only  slight 
exertion.  But  generally,  though  the  resources  of  nature  are 
inexhaustible,  and  readily  offer  themselves  under  the  proper 
conditions,  these  conditions  must  be  furnished  in  the  form 
of  man's  labor. 

There  are  tvvo  great  agencies  which  must  co-operate  in 
production,  —  nature  and  man.  Man  furnishes  labor.  This 
includes  not  only  muscular  exertion,  but  all  the  mental 
effort  —  the  study,  care,  and  anxiety  —  involved  in  securing 
objects  of  desire.  Nature  furnishes  all  the  material  upon 
which  labor  is  to  be  exerted,  and  all  the  forces  without 
which  it  would  be  ineffectual. 

I.  Nature  supplies  materials.  In  the  simplest  and  most 
rudimentary  style  of  human  living,  the  desires  of  men  are 
few,  and  easily  satisfied.  Fruits  and  nuts  may  be  had  for 
the  gathering.  Wild  animals  may  furnish  meat.  There  are 
caves  and  hollow  trees  which  serve  for  shelter.  Still  some 
effort  is  requisite  to  secure  the  sustenance,  and  to  render 
the  shelter  tenable.  The  animals  must  be  hunted  and  slain, 
and  their  flesh  prepared,  although  it  be  in  the  rudest  manner. 
Fruits  must  be  gathered,  and  the  caves  and  cavities  shaped 


12  POLITICAL   ECONOMY. 

and  in  some  way  adapted.  As  society  is  developed,  and  as 
improvements  are  made,  there  will  be  additional  desires 
prompting  to  additional  exertions  ;  and  the  material  to  which 
these  are  to  be  applied  will  be  forthcoming  in  the  forms  of 
wood,  minerals,  the  skins  of  beasts  and  their  coverings,  the 
soils  of  the  earth  and  those  things  which  sjjring  out  of  them. 
These  comiDrise  an  almost  endless  variety  of  materials  to 
which  industry  may  be  applied. 

2,  But  nature  furnishes  not  only  materials,  but  z\.so  forces, 
to  aid  man  in  his  productive  efforts.  The  more  obvious 
and  palpable  of  these  are  gravitation,  wind,  explosive  agen- 
cies ;  the  expansive  power  of  steam,  magnetism,  electricity, 
and  the  forces  of  vegetation.  There  are  also  numerous 
passive  powers  or  properties  of  matter,  which,  when  adopted 
by  man,  give  him  untold  advantage.  Such  are  the  mechanical 
powers  of  the  lever,  inclined  plane,  and  pulley,  and  those 
qualities  of  the  metals  which  render  them  capable  of  taking 
an  edge  for  cutting-purposes,  as  also  malleability,  ductility, 
and  elasticity. 

2.  Labor  has  been  defined  as  the  voluntary  effort  put 
forth  by  man  to  secure  objects  of  desire.  We  have  seen 
that  nature  furnishes  the  material  upon  which  labor  is  to  be 
exerted,  and  the  efficient  forces  through  which  production  is 
effected.  These  materials  and  forces  are  supplied  gratiii- 
tously.  Nature  is  not  parsimonious  in  this  respect.  The 
more  we  avail  ourselves  of  her  help,  the  more  ready  she  is 
to  help  us ;  and  the  greater  the  advantage  we  get  over  her, 
the  more  lavishly  she  bestows  her  gifts  upon  us. 

Labor,  then,  consists  not  in  creating  things,  but  in  moving 
thejn ;  that  is,  in  effecting  changes.  It  directs  the  natural 
forces  to  the  service  of  man,  and  it  is  in  this  that  produc- 
tion chiefly  consists.  It  can  move  materials  and  objects 
into  positions  where  these  forces  can  act  upon  them  with 


PRODUCTIVE  AGENCIES.  1 3 

the  desired  effect.  Thus  an  agricultural  laborer  can  effect 
such  changes  in  the  soil  as  are  requisite  to  the  growth  of 
corn,  and  he  can  place  the  seed  in  the  ground ;  but  he  can- 
not make  the  crop.  It  is  as  impossible  for  him  to  create  a 
kernel  of  grain  as  to  make  a  planet.  Labor  may  move  fuel 
to  the  fire-place,  and  may  properly  dispose  it  for  ignition ; 
it  may  move  a  match,  which  by  a  previous  motion  has 
caught  fire,  to  the  prepared  fuel :  but  the  kindling  flame, 
the  heat  and  its  effects  in  cooking  food  or  transforming 
water  into  steam,  are  the  results  of  energies  and  properties 
which  man  could  never  invent.  It  is  nevertheless  true,  diat, 
without  the  agency  of  labor  by  which  the  changes  are  made, 
none  of  these  effects  would  follow.  Nature  does  ten  thou- 
sand things  without  the  co-operation  of  man.  She  even 
furnishes  innumerable  utilities ;  but  by  herself  she  is  not  a 
producer,  she  creates  no  value. 


CHAPTER  II. 

APPLICATION   OF   LABOR  TO   PRODUCTION. 

1.  The  application  of  labor  to  production  is  of  t^vo  kinds, 
direct  and  indirect.  The  direct  changes  effected  by  labor 
may  be  embraced  under  the  three  heads  of  transmutatioti, 
transformation,  and  transportatioji ;  or,  a  change  of  ele- 
ments, a  change  of  form,  and  a  change  of  place.  They  are 
also  spoken  of  as  chemical,  mechanical,  and  commercial 
changes.  The  first  finds  its  most  common  examples  in  agri- 
culture. The  seed  is  put  in  certain  relations  to  the  soil ;  and 
thus  are  furnished  conditions  of  mar\^ellous  changes  in  the 
elements,  drawn  from  both  the  earth  and  the  atmosphere. 
But  this  kind  of  change  is  not  limited  to  agriculture.  It  is 
exemplified  in  the  rendering  of  ores,  and  the  manufacture 
of  soap,  butter,  cheese,  etc. 

Changes  in  form  are  seen  in  the  mechanical  arts.  Leather 
is  transformed  into  shoes,  cloth  into  garments,  and  lumber 
into  houses  and  cabinet-ware. 

Changes  in  place  are  seen  when  a  commodity  is  produced 
in  one  locality,  and  desired  in  another  where  it  cannot  be 
produced.  Coal  is  found  in  the  mountains  of  Pennsylvania, 
and  carried  to  New  York,  Boston,  and  hundreds  of  other 
places  where  it  is  needed. 

2.  The  indirect  application  of  labor  to  production  is  of 
far  more  importance  than  is   popularly  attached  to  it.     A 

14 


APPLICATION  OF  LABOR    TO  PRODUCTION.      1 5 

little  reflection  \vill  convince  us  that  the  direct  effort  put 
forth  in  effecting  changes  is  only  a  small  fraction  of  the 
whole  labor  involved.  In  indicating  the  several  distinct 
forms  of  indirect  labor,  we  may  make  a  general  division  into 
the  mo7'e  obvious  and  the  less  obvious. 
The  more  obvious. 

1.  In  a  large  majority  of  instances,  the  material  from 
which  a  commodity  is  to  be  produced  by  direct  labor  must 
be  previously  prepared.  In  the  building  of  a  house,  a  few 
carpenters,  masons,  and  other  artisans  are  employed.  But 
the  lumber,  timber,  bricks,  stone,  nails,  paint,  paper,  etc., 
have  to  be  furnished  to  these  workmen  by  other  producers ; 
and  the  material  out  of  which  the  latter  prepare  some  of 
these  has  to  be  provided  by  laborers  still  back  of  them. 
Nature,  it  is  true,  furnishes  all  the  original  material ;  but  it 
must  often  pass  through  several  processes  before  it  is  fit  for 
its  final  uses. 

2.  Another  form  of  the  indirect  application  of  labor  is 
seen  in  the  manufacture  of  implements  which  the  direct 
laborer  uses.  The  farmer  must  have  ploughs,  cultivators, 
carts,  etc. ;  each  of  the  makers  of  these  must  also  have 
tools  to  work  with  :  and  so  on,  back  to  the  simplest  forms 
of  handicraft. 

3.  For  the  workers  in  any  occupation,  sustenance  must  be 
provided.  Hence  those  who  produce  the  food  upon  which 
the  direct  laborers  subsist  are  indirectly  helping  in  the  crea- 
tion of  the  value  resulting. 

4.  Another  form  of  indirect  labor  is  the  preparation  of 
shelter,  clothing,  and  fuel  for  the  direct  workers.  Under  this 
head,  too,  is  to  be  reckoned  the  erection  of  buildings  for  any 
manufacturing  or  mechanical  business.  These  are  essential 
to  every  such  enterprise,  and  the  labor  involved  is  to  be 
considered  in  estimating  the  value  of  the  final  product. 


1 6  POLITICAL  ECONOMY. 

5.  The  p7'otection  of  the  laborers,  their  implements,  mate- 
rials, and  products,  is  also  an  item  in  the  indirect  applica- 
tion of  labor.  It  is  necessary  to  have  agents  selected  by 
society,  to  guard  against  fraud,  violence,  and  intimidation. 
They  are  a  condition  of  profitable  exertion,  and  their  services 
are  to  be  reckoned  among  the  costs  of  all  production. 

3.  The  less  obvious  forms  of  indirect  labor. 

The  foregoing  comprise  most  of  the  more  obvious  forms 
of  the  indirect  application  of  labor  to  production.  There  are 
other,  not  so  conspicuous  yet  very  important,  ways  in  which 
labor  more  remotely,  but  still  actually,  contributes  to  this  end. 
To  some  of  these  less  obvious  forms  of  indirect  labor,  I  now 
call  attention. 

1.  There  is  the  work  of  organizing,  superintending,  and 
managing  a  business  enterprise.  Every  one  knows  how  much 
depends,  even  in  small  undertakings,  on  wise  calculations, 
careful  plans,  and  judicious  oversight ;  and  how,  for  want 
of  these,  there  has  often  been  a  vast  expenditure  of  labor  to 
very  little  profit.  Hence  the  organizers  and  managers  of 
enterprises  are  to  be  reckoned  as  contributors  to  the 
product. 

2.  All  the  labor  comprised  in  the  raising  of  children,  who 
are  themselves  to  become  laborers,  is  to  be  reckoned  here. 
This  demands  the  expenditure  of  much  effort  on  the  part 
of  parents  and  others.  Were  their  labor  to  be  wanting,  the 
productive  force  of  the  world  would  soon  cease. 

3.  The  labor  involved  in  education  is  also  clearly  subsidi- 
ary to  production.  In  this  is  embraced  all  that  adds  to  the 
power  and  efficiency  of  the  individual  man.  The  labor  may 
be  that  of  the  teacher  or  of  the  pupil,  of  instruction  or  of 
learning.  Some  of  the  most  important  vocations  require  no 
small  amount  of  mental  training  in  those  who  follow  them.  It 
is  true,  these  are  comparatively  few ;  but  all  of  the  industries 


APPLICATION  Of  LABOR    TO  PRODUCTION.      1 7 

require  more  or  less  intelligence  ;  and  the  more  of  this  any 
worker  has,  other  things  being  equal,  the  greater  will  be  his 
productive  efficiency.  Certainly  there  is  no  calling  in  which 
ignorance  is  an  advantage  :  an  idiot  would  not  do  for  even 
a  hod-carrier. 

4.  In  the  class  of  indirectly  productive  labor  is  comprised 
that  of  the  so-called  professions.  Physicians,  by  their  knowl- 
edge and  skill,  preserve  the  health  which  would  otherwise 
become  impaired,  or  restore  that  already  impaired,  and  thus 
furnish  laboring  ability  to  the  community,  which  would  not 
exist  but  for  their  agency.  The  lawyer  puts  forth  productive 
power  in  another  way :  if  a  laborer  has  a  legal  question 
which  it  would  require  days,  and  perhaps  weeks,  for  him  to 
investigate  and  determine,  but  which  a  lawyer  who  has  pre- 
pared himself  by  previous  discipline  and  experience  can 
determine  in  a  few  hours,  at  a  cost  to  the  laborer  of  only 
a  quarter  of  the  labor  which  he  might  have  otherwise  vainly 
spent,  is  there  not  here  a  clear  and  undeniable  gain  to  the 
productive  force  of  the  community  ? 

The  clergyman  furnishes  none  of  the  commodities  which 
are  commonly  reckoned  as  constituting  wealth  ;  but  if,  through 
his  ministries,  diligence,  temperance,  frugality,  and  integrity 
are  promoted,  and  indolence,  sensuality,  and  dishonesty  are 
diminished,  he  certainly  furnishes  conditions  of  a  larger 
productiveness  than  would  otherwise  exist ;  and  thus  his 
labor  is,  in  a  marked  though  indirect  way,  appUed  to  pro- 
duction. 

5.  Into  this  category  come  also  inventors  and  discoverers. 
Among  the  latter  we  include  the  men  of  science,  who,  by 
their  investigations,  bring  to  light  new  forces  and  agencies, 
or  new  combinations  of  those  which  nature  furnishes  in  aid 
of  human  labor.  The  former  are  those  whose  skill  enables 
them  to  apply  these  in  the  various  devices  and  contrivances 


1 8  POLITICAL   ECONOMY. 

which  constitute  the  efficiency  of  machinery.  The  marvel- 
lously multiplied  resources  accruing  to  humanity  by  these 
means  are  familiar  to  the  most  ordinary  intelligence. 

These  are  some  of  the  chief  ways  in  which  human  exer- 
tion, though  not  very  obviously  related  to  production,  does 
not  the  less  actually  enhance  it  to  a  manifold  extent.  There 
are  also  others,  which  there  is  no  need  to  enumerate. 

4.  It  is  perhaps  worth  our  while,  at  this  point,  to  notice 
an  error  to  which  many  of  our  recent  economists  have  given 
encouragement.  We  have  been  taught  that  wealth  is  the 
creation  of  labor  alone.  The  imi^ression  is  made,  whether 
intentional  or  not,  that  this  labor  is  solely  physical  exertion. 
Demagogues  have  seized  upon  this  notion,  and  have  instilled 
into  the  minds  of  uneducated  workingmen  that  the  latter 
have  created  all  the  wealth  comprised  in  massive  buildings, 
in  bridges  and  aqueducts,  in  great  ships  and  ocean  steam- 
ers, in  railroads  and  canals,  in  complicated  machinery  and 
costly  wares.  This  doctrine  would  be  safe  enough  if  it  were 
true.  But  it  is  not  true,  and  is  therefore  unwholesome  and 
pernicious.  Certainly  the  things  spoken  of  could  not  have 
existed  without  physical  toil ;  but,  just  as  certainly,  physical 
toil  alone  could  never  have  produced  more  than  an  insig- 
nificant fraction  of  them.  Of  incalculably  greater  impor- 
tance have  been  the  mental  qualities  called  into  requisition. 
It  is  also  further  to  be  considered,  —  and  the  consideration 
is  more  important  than  any  yet  named,  —  that  character  is, 
after  all,  the  most  potent  condition  of  wealth.  A  great  part 
of  the  error  to  which  I  here  allude  consists  in  putting  the 
ethical  aspects  of  the  question  out  of  sight.  But  these  can- 
not be  ignored  without  vitiating  the  whole  discussion.  Upon 
the  moral  character  of  a  society,  more  than  upon  all  other 
things,  depends  its  productive  and  especially  its  accumu- 
lative power.     No  qualities  are  so  essential  to  the  existence 


APPLICATION  OF  LABOR    TO  PRODUCTION.      I9 

of  wealth  as  industry,  frugality,  and  self-denial.  There  will 
be  little  wealth  in  a  community  where  fraud,  injustice,  and 
sensuality  are  the  ruling  characteristics.  This  makes  an 
important  proposition,  previously  announced,  more  evident ; 
namely,  that  man  is  the  proper  subject  of  poUtical  economy. 


CHAPTER  III. 

PRODUCTIVE   AND  UNPRODUCTIVE   LABOR. 

1.  There  is  no  very  general  agreement  as  to  what  consti- 
tutes the  difference  between  productive  and  unproductive 
labor.  Some  deny  that  there  is  any  such  thing  as  unjDro- 
ductive  labor  :  others  restrict  productive  labor  to  that  which 
results  in  material  wealth.  According  to  the  latter,  Daniel 
Webster,  Horace  Greeley,  and  Professor  Agassiz  were  not 
producers,  but  the  men  who  made  their  shoes  and  furnished 
their  provisions  were.  Still  other  writers  enlarge  the  sphere 
of  productive  laborers  by  reckoning  as  such  all  who  indirectly 
contribute  to  production. 

If  we  accept  the  definitions  previously  given  of  labor, 
production,  and  value ;  and  if  we  admit,  even  without  ac- 
cepting it  as  a  definition,  that  "  wealth  is  the  power  which 
man  has  to  command  the  gratuitous  services  of  nature,"  — 
then  we  shall  be  obliged  to  admit,  that  not  only  all  the  vari- 
ous classes  of  laborers  to  which  reference  is  made  in  the 
last  chapter,  but  that  all  who  labor  in  any  art  the  design  of 
which  is  to  gratify  any  legitimate  desire  of  man,  are  produc- 
tive laborers.  For,  this  capability  of  gratifying  desire  is  an 
essential  condition  of  wealth ;  and  when  furnished  by  any 
kind  of  effort,  whether  the  product  takes  on  a  permanent 
form  awaiting  future  consumption,  or  is  consumed  at  the 
instant  of  production,  it  is  all  the  same ;  for  nothing  can  be 

20 


PRODUCTIVE  AND    UNPRODUCTIVE  LABOR.      21 

regarded  as  a  product  which  is  not  destined  to  be,  sooner  or 
later,  consumed. 

2.  Notwithstanding  these  strictures  on  the  doctrine  which 
makes  so  many  and  important  kinds  of  effort  unproductive, 
there  are  still  numerous  instances  of  unproductive  labor. 
The  following  are  the  most  prominent  of  these  :  — 

1.  Misdirected  labor,  or  that  which  does  not  secure  the 
object  at  which  it  aims.  If  a  man  should  devote  months  of 
time  to  the  constmction  of  a  machine  of  which  the  mechani- 
cal principle  on  which  it  depends  is  impossible,  his  labor  is, 
of  course,  ineffective. 

2.  All  of  that  labor  the  ultimate  object  of  which  is  destruc- 
tio?i.  Such  almost  wholly  is  war.  It  is  admitted  that  wars 
may  be  waged  to  prevent  a  greater  destruction  than  that 
involved  in  their  prosecution.  But,  whatever  may  be  the 
design  of  any  war  at  the  beginning,  it  must  be  acknowledged, 
that  the  destruction  of  wealth  has  been  incalculably  greater 
than  the  conservation  or  creation  of  it.  Evidently  most  of 
the  energy  expended  in  war  is  unproductive.  Here,  too, 
must  be  reckoned  the  labor  implied  in  maintaining  vast 
standing  armies.  Could  all  this  labor  be  turned  into  produc- 
tive channels,  it  would  incalculably  augment  the  resources  of 
the  civilized  world. 

3.  All  pu7-ely  specidative  projects.  By  these  I  mean  all 
such  buying  and  selling  as  involve  no  increase  of  wealth  to 
any  one  except  by  the  same  amount  of  diminution  to  others ; 
in  other  words,  where  all  that  is  gained  by  one  party  is  ne- 
cessarily lost  by  another.  All  trade  which  does  not  furnish 
some  utility  to  society,  not  otherwise  possessed,  is  unpro- 
ductive. 

4.  Finally,  we  may  rank  here  all  labor  expended  in  minis- 
tering to  any  desire  the  gratification  of  which  will  diminish 
the  productive  power  of  its  subject,  or  of  any  under  his 


22  POLITICAL   ECONOMY. 

control.  Such  would  include  the  manufacture  and  trafific 
in  intoxicating  beverages.  Nor  is  this  the  only  business 
which  has  this  character,  though  doubtless  it  has  it  more 
obviously  and  conspicuously  than  any  other.  All  the  labor 
of  furnishing  a  depraved  literature  to  the  perversion  and 
enervation  of  the  mind,  and  every  system  of  effort  by  which 
is  stimulated  or  gratified  any  passion  or  proclivity  that  dimin- 
ishes man's  power  over  himself,  and  so  over  the  means  which 
nature  freely  furnishes  to  all  who  are  competent  to  command 
them,  are  of  this  kind. 


CHAPTER  IV. 


CAPITAL. 


1.  We  have  already  seen  that  capital  is  essential  to  any 
considerable  production.  We  have  also  seen  that  capital  is 
the  result  of  previous  labor  reserved  to  aid  in  future  produc- 
tion. We  have  further  learned  that  capital  implies  saving. 
But  mere  saving  is  not  the  sole  condition  of  capital ;  indeed, 
a  narrow  penuriousness  prevents  the  rapid  accumulation  of 
capital.  The  man  who  is  accustomed  to  bring  his  water  from 
a  spring  a  quarter  of  a  mile  from  his  house,  instead  of  dig- 
ging a  well  at  the  cost  of  a  few  dollars  or  a  few  days'  work, 
acts  uneconomically.  In  the  long-run,  the  bringing  of  the 
water  from  the  spring  costs  him  much  more  than  the  digging 
of  the  well.  The  man  who  has  extensive  grain-fields,  and 
who,  for  the  sake  of  saving  the  expense  of  a  reaper  or  even 
a  cradle,  continues  to  use  the  sickle,  will  find  that  his  saving 
results  in  a  loss  instead  of  a  gain. 

2.  A  man  does  not  need  to  be  rich  in  order  to  be  a  capi- 
talist. When  the  savage  has  invented  a  bow  and  arrows,  he 
has  the  rudiments  of  capital.  The  laborer  who  has  reserved 
out  of  his  earnings  enough  to  buy  him  a  set  of  tools,  or  a 
few  acres  of  land,  is  as  really  a  capitalist  as  the  owner  of 
factories  and  railroads.  It  is  only  as  foresight  discerns  the 
valuable  consequences  of  self-denial,  that  there  arises  a  suffi- 
cient inducement  to  reserve  from  present  consumption  for 

23 


24  POLITICAL   ECONOMY. 

future  use.  ''  The  hardest  lesson  for  children  and  savages 
to  learn  is  that  of  economy,  —  the  necessity  of  bridling  the 
inclination  or  appetite  of  the  moment,  with  a  view  to  some 
prospective  benefit.  Long  and  hard  experience  has  taught 
this  lesson  to  the  full-grown  and  reflecting  man,  and  taught 
it  so  effectually,  that,  as  is  often  the  case,  the  acquired  incli- 
nation overrides  the  original  impulses  ;  and  all  other  passions 
are  merged  not  merely  in  the  love  of  accumulation,  but  in 
that  of  saving."  ' 

3.  Capital  is  not  synonymous  with  wealth.  It  is  only  that 
portion  of  wealth  which  is  employed  in  producing  wealth. 
We  need  a  little  caution  here,  however,  lest  we  be  misled. 
There  is  a  large  amount  of  property  which  is  not  apparently 
or  instantly  productive,  but  which  is  unquestionably  to  be 
reckoned  as  capital.  It  furnishes  certain  conditions  of  pro- 
duction, inasmuch  as,  if  it  did  not  exist  in  its  relation  to  the 
given  enterprise,  the  latter  could  not  go  on.  A  farmer  must 
have  a  considerable  stock  of  provisions  which  he  reserves 
from  one  harvest  for  his  subsistence  till  another.  These 
may  lie  a  great  part  of  the  year  inactive  and  apparently 
useless  in  his  storehouses.  But  they  are  nevertheless  a  part 
of  his  capital,  and  without  them  his  business  must  fail.  The 
same  is  true  of  the  fund  which  the  manufacturer  reserves 
with  which  to  pay  his  workmen.  It  is  the  means  of  their 
subsistence  between  the  time  of  their  beginning  work  and 
the  time  when  the  completed  product  put  in  the  market 
brings  in  its  returns. 

4.  The  difference  between  wealth  and  capital  may  be  fur- 
ther illustrated.  A  man  has  a  hundred  thousand  dollars. 
He  decides  to  invest  in  a  manufacturing  enterprise.  He 
expends  a  portion  of  it  in  buildings  and  their  appurtenances 
adapted  to  his  object.     He  reserves  a  sufficient  amount  for 

*  Professor  Bowen. 


CAPITAL.  25 

the  sustenance  of  laborers,  which  will  be  in  the  form  of 
money  to  be  paid  out  as  wages  ;  also  a  certain  amount  to  be 
used  in  the  purchase  of  raw  material.  He  must  also  make 
provision  for  food,  clothing,  and  shelter,  to  keep  himself  in 
a  condition  to  do  his  own  work  till  the  time  of  returns  from 
the  products  of  the  business.  All  this  might  properly  be 
reckoned  as  capital.  But  the  amount  embraced  in  the  last 
item  must  be  strictly  limited  to  the  purposes  designated  ; 
namely,  to  enable  the  proprietor  to  do  the  work  essential  to 
his  business  :  otherwise  it  is  not  capital.  If  he  does  none 
of  the  work,  but  leaves  the  management  to  others,  then  the 
amount  expended  in  food,  clothing,  and  shelter  is  not  capi- 
tal at  all.  Or,  if  he  be  engaged  in  the  business,  all  that  he 
expends  beyond  what  is  essential  to  the  purposes  specified 
is  so  much  outside  of  his  capital.  Thus  he  may  put  twenty 
thousand  dollars  into  a  house,  grounds,  gardens,  conservato- 
ries, costly  furniture,  and  works  of  art ;  but  most  of  this  is 
so  much  subtracted  from  his  capital.  It  may  be  all  properly 
and  wisely  used,  but  it  is  not  used  as  a  condition  of  further 
production. 

5.  Capital  is  divided  into  fixed  and  circulating.  There 
are  two  distinct  ways  in  which  capital  is  applied  to  produc- 
tion. The  main  difference  consists  in  this,  that  certain  kinds 
of  capital  are  used  only  once  in  the  fulfilment  of  their  pur- 
poses ;  certain  other  kinds  are  used  repeatedly.  There  are 
also  some  minor  differences. 

Circulating  capital  is  of  two  kinds,  i.  There  are  the 
stock  and  commodities  of  any  character  to  be  consumed  in 
reproduction.  These  embrace  {a)  the  material  out  of 
which  the  new  product  is  to  come,  —  as  lumber  for  cabinet- 
ware,  leather  for  shoes,  and  cloth  for  garments ;  (b)  food 
and  other  provisions  for  the  sustenance  of  laborers.  2. 
There  is  the  stock  of  completed  commodities  on  hand  and 


26  POLITICAL   ECONOMY. 

ready  for  the  market.  The  chairs  that  are  finished  and 
ready  for  sale  in  the  factory  are  of  this  character.  It  is  to 
be  observed,  that  the  same  article  may  be  at  one  time  circu- 
lating, and  at  another  time  fixed,  capital.  Thus  the  chairs 
just  spoken  of,  while  they  are  in  the  hands  of  the  maker,  or 
passing  through  the  hands  of  the  wholesale  or  retail  dealer, 
are  circulating  capital.  It  is  only  when  they  become  fixed 
in  use  that  their  character  changes. 

Fixed  capital  consists  :  i .  Of  all  tools,  machinery,  and 
implements  used  in  any  industry;  under  this  head,  too, 
are  comprised  all  beasts  of  burden  or  draught,  and  all  struc- 
tures of  every  sort  for  manufacturing  and  productive  pur- 
poses. 2.  All  improvements  of  land,  such  as  clearing, 
draining,  fencing,  etc.  3.  Mental  acquisitions  gained  by 
labor,  and  which  give  man  power  for  productive  results. 

6.  It  must  be  borne  in  mind,  that  there  can  be  no  pro- 
duction without  consumption.  All  capital  is  consumed. 
This  is  readily  seen  in  the  case  of  circulating  capital,  but 
not  so  readily  in  that  of  fixed.  Yet  evidently  tools,  build- 
ings, bridges,  locomotives,  and  all  other  structures  and  in- 
struments wear  out.  The  only  difference  is,  that  in  one  case 
the  consumption  takes  place  at  once  ;  in  the  other,  it  is 
gradual.  Some  kinds  of  fixed  capital  are  consumed  more 
rapidly  than  others.  The  farmer's  scythes,  hoes,  and  hand- 
rakes  rarely  last  mpre  than  a  year  or  two.  His  carts,  wag- 
ons, reapers,  etc.,  last  much  longer.  The  steel  pen  with 
which  I  write  these  lines  has  been  in  use  scarcely  a  week, 
and  has  now  nearly  exhausted  its  capability  of  service. 
The  inkstand  before  me  has  served  for  nearly  a  dozen  years. 
Some  bridges  and  other  structures  have  been  in  existence 
for  centuries.  The  old  Roman  aqueducts  are  still  seen 
stretching  away  for  miles  over  the  Campagna.  Most  of 
them,  it  is  true,  are  in  ruins;   but   the   many  yet  remain- 


CAPITAL.  27 

ing  massive  arches  upholding  the  water-courses  show  how 
enduring  are  some  of  the  products  of  human  industry, 

7.  It  is  an  interesting  fact,  and  worthy  of  notice  here, 
that  nearly  all  the  wealth  now  in  existence  has  been  created 
within  a  comparatively  recent  period,  and  most  of  it  \vithin 
a  few  years.  We  talk  of  property  inherited  from  ancestors, 
as  if  it  had  been  received  from  them  in  its  present  form. 
Many  persons  have  the  impression  that  no  portion  of  the 
wealth  of  the  community  has  been  produced  within  the  past 
year,  except  so  much  as  may  have  been  added  to  that  pre- 
viously existing.  This  is  a  great  mistake.  Says  Mr.  Mill, 
"  The  greater  part  in  value  of  the  wealth  now  existing  in 
England  has  been  produced  within  the  last  twelve  months." 
This  is  stating  the  case  pretty  strongly,  but  it  is  not  so  far 
out  of  the  way  as  one  who  has  not  investigated  the  subject 
might  suppose.  It  is  nearly  certain  that  only  a  small  pro- 
portion of  the  wealth  now  existing  in  England  or  in  this 
country  had  any  existence  ten  years  ago.  Capital  is  per- 
petuated, not  by  preservation  in  its  present  forms,  but  by 
continued  reproduction.' 

8.  It  will  readily  oe  seen  that  all  fixed  capital  must  have 
previously  existed  in  the  form  of  circulating  capital,  and 
that  the  former  only  results  from  the  conversion  of  the 
latter.  Thus,  in  the  primitive  condition  of  society,  when  the 
savage  has  secured  a  certain  amount  of  food,  he  may  con- 
sume that  food  at  once,  or  he  may  reserve  a  certain  portion 
of  it  till  he  has  an  accumulated  store,  on  which  he  may  then 
live  while  he  takes  time  to  construct  an  improved  club,  or  a 
bow  and  arrows.     In  the  latter  case  he  has  converted  his 


'  The  whole  value  of  the  industrial  product  of  the  United  States  for  1870  was 
estimated  at  $7,286,629,328.  The  whole  value  of  all  the  property  of  the  country  was 
reputed  by  the  same  authority  as  a  little  more  than  $30,000,000,000.  Thus  the  annual 
product  was  nearly  one-fourth  as  much  as  the  entire  wealth. 


28  POLITICAL   ECONOMY. 

means  of  sustenance,  which  was  circulating  capital,  into  fixed 
capital.  By  this  means  he  has  acquired  additional  power 
over  nature,  and  can  accumulate  more  rapidly  than  before. 
As  he  can  now  more  easily  supply  his  wants,  he  will,  if  the 
spirit  of  sacrifice  be  sufficiently  strong,  be  able  to  contrive 
and  invent  other  instruments  which  will  always  be  the  means 
of  additional  advantage  in  his  contest  with  nature.  It  is 
this  constant  conversion  of  circulating  into  fixed  capital, 
that  marks  the  progress  of  man  from  barbarism  to  civiliza- 
tion, and  the  gradual  predominance  of  mind  over  matter. 

9,  So  far  we  see,  in  the  case  of  a  single  individual  and 
in  the  rudimentary  condition  of  society,  only  good  resulting 
from  this  change  from  the  temporary  into  the  permanent 
forms  of  wealth.  This  would  seem  to  indicate  a  general 
law,  that,  in  proportion  as  the  tendency  of  property  to 
take  on  permanent  forms  increases,  the  tendency  to  the 
growth  of  wealth  increases ;  or,  that  capital  increases  with 
the  tendency  to  the  conversion  of  circulating  into  fixed 
capital. 

Yet  the  opinion  widely  prevails  among  the  uneducated  or 
partially  educated  classes,  and  even  to  jome  extent  among 
the  better  informed,  that,  as  machinery  is  invented,  more 
and  more  laborers  will  be  thrown  out  of  employment,  and 
thus  deprived  of  their  means  of  support.  There  are  many 
circumstances  about  the  introduction  of  machinery,  which, 
to  a  superficial  observer,  indicate  such  a  consequence.  Thus, 
on  a  certain  large  farm,  twenty  men  have  been  necessary  to 
do  the  harvesting.  Now  the  proprietor  purchases  a  reaper. 
With  two  horses  and  two  or  three  men,  as  much  can  be 
accomplished  as  before  with  the  whole  twenty.  Conse- 
quently seventeen  or  eighteen  men  are  deprived  of  employ- 
ment. In  some  instances  of  sudden  and  rapid  invention 
and  change,  this  would  undoubtedly  be  the  case.     But  these 


CAPITAL.  29 

changes  usually  come  on  gradually.  There  is  always  a  de- 
mand for  a  part  of  the  displaced  labor,  in  the  construction 
of  the  machines.  By  reason  of  the  increased  facilities,  tliere 
will  be  a  larger  production  at  the  same  cost.  This  will 
diminish  the  price,  and  greatly  enlarge  the  demand,  to  satisfy 
which  more  laborers  will  be  needed.  There  will  also  be  a 
more  rapid  increase  of  capital,  thus  furnishing  still  addi- 
tional opportunities  for  labor.  The  ultimate  and  not  very 
remote  result  is,  that  more  laborers  are  required  than  before 
the  displacement,  and  that,  too,  at  better  wages ;  while,  by 
means  of  the  ever-increasing  facilities,  the  cost  of  the  means 
of  living  is  diminished. 

The  inventions  of  ArkwTight  and  Hargreaves,  when  they 
were  first  adopted,  so  alarmed  and  exasperated  the  poor 
spinners  of  the  neighborhood,  who  looked  upon  them  as 
portending  starvation  to  themselves  and  their  families,  that 
they  resorted  to  violence,  and  tore  down  the  machinery,  and 
drove  away  the  inventors.  Yet,  I  suppose,  within  the  life- 
time of  these  very  workmen,  and  through  the  influence  of 
these  very  machines,  the  demand  for  labor  in  the  cotton- 
manufacture  was  more  than  doubled  ;  while,  for  a  great  part 
of  the  time  since,  probably  fifty  times  as  many  hands  have 
been  employed  as  previously.  The  increase  of  labor-saving 
machinery  within  the  present  century  has  been  almost  incal- 
culable ;  yet  wages  have  been  almost  constantly  increasmg, 
while  such  commodities  as  are  desired  by  the  laborers  are 
constantly  diminishing  in  value. 

But  while  in  general  the  conversion  of  circulating  into 
fixed  capital  is  not  detrimental,  but  on  the  contrary  advan- 
tageous to  the  laborer,  there  are  exceptions.  This  conver- 
sion may  take  place  at  times  and  under  conditions  which 
render  it  an  evil  instead  of  a  benefit.  Instances  of  this  are 
seen  in  the  building  of  railroads  through  regions  where  there 


30  POLITICAL   ECONOMY. 

is  no  demand  for  them,  or  the  multiplying  of  houses  in  a 
village  or  city  where  the  increase  of  population  does  not 
warrant  it.  But  these  are  mistakes  which,  while  they  do 
much  mischief  temporarily,  yet  quickly  correct  themselves 
from  the  very  nature  of  the  case. 


CHAPTER  V. 

RELATIONS   OF  CAPITAL  AND   LABOR. 

1,  The  relation  of  capital  and  labor  is,  in  general,  that  of 
mutual  dependence.  Capital  can  produce  nothing  without 
labor.  Labor  works  at  an  immense  disadvantage  \vithout 
capital.  Doubtless  the  precedence  must  be  given  to  labor, 
since  it  must  have  created  the  first  capital,  and  is  therefore 
competent  to  effect  some  rude  production  without  capital. 
But  each  is  essential  to  any  considerable  effectiveness  of  the 
other,  and  there  is  no  real  antagonism  between  them.  The 
conflict  of  capitalists  and  laborers,  so  often  manifested,  arises 
out  of  the  selfishness  and  ignorance  of  the  human  agents, 
and  not  out  of  the  nature  of  things. 

2.  Labor  is  limited  by  capital.  This  is  a  fundamental 
proposition,  but  subject  to  various  modifications.  We  have 
seen  that  capital  of  itself  produces  nothing.  It  only  fur- 
nishes the  conditions  of  successful  labor.  The  capital  upon 
which  labor  depends  consists  substantially  of  (a)  the  ma- 
terial to  be  wrought  into  other  forms,  (^)  real  estate,  (c) 
machinery  and  implements,  and  (^/)  the  sustenance  of  the 
workmen. 

The  proposition  that  labor  is  limited  by  capital  is  some- 
times interpreted  to  mean,  that,  in  any  community  with  a 
given  amount  of  capital,  any  increase  of  laborers  must  dimin- 
ish the  rate  of  wages,  and  that  any  increase  of  the  rate  must 

31 


32  POLITICAL   ECONOMY. 

diminish  the  number  of  laborers  employed.  This  interpre- 
tation presumes  that  all  the  capital  of  the  community  is  em- 
ployed in  the  most  profitable  manner,  and  that  the  labor 
applied  to  it  is  disposed  according  to  the  best  methods. 
But  these  are  conditions  seldom  likely  to  co-exist,  even  if 
they  exist  separately. 

Still  it  remains  true  in  general,  that,  when  there  is  a  small 
amount  of  capital,  only  a  small  amount  of  labor  can  be 
advantageously  employed.  On  the  other  hand,  the  more 
capital  there  is,  other  things  being  equal,  the  greater  will  be 
the  demand  for  labor,  and  the  greater  its  remuneration. 

3.  Does  the  unproductive  expenditure  of  the  rich  tend  to 
the  benefit  of  the  poor  by  creating  a  demand  for  labor? 
This  question  has  been  much  discussed,  and  even  yet  it  is 
not  with  all  minds  clearly  settled.  Doubtless  it  does  not 
admit  of  a  categorical  answer.  The  opinion  that  a  profuse 
and  extravagant  consumption  of  wealth  is  beneficial  to  the 
community  at  large,  can  hardly  be  held  without  qualification 
by  any  person.  Let  us  carefully  consider  the  subject  in 
several  of  its  bearings. 

Here  is  a  man  whose  income  is  $20,000  a  year.  We  \\'ill 
suppose  that  he  consumes  all  this  unproductively.  He  em- 
ploys a  large  retinue  of  servants,  he  buys  costly  delicacies  for 
his  table,  procures  splendid  furniture  and  expensive  garments, 
and  gives  magnificent  entertainments.  All  this  expenditure 
may  be  for  services  rendered,  —  for  the  work  of  servants,  the 
products  of  artisans  and  artists.  It  makes  a  demand  for  a 
large  amount  and  a  great  variety  of  labor.  But  nearly  all 
the  product  of  all  this  labor  is  consumed  within  the  year : 
nothing  is  reserved.  It  is  true,  if  this  is  a  permanent  income, 
and  this  is  our  hypothesis,  the  same  number  of  laborers,  but 
no  more,  can  be  employed  for  the  next  and  the  subsequent 
years. 


RELATIONS  OF  CAPITAL   AND  LABOR.  33 

Now,  suppose,  that,  instead  of  expending  the  whole  $20,000, 
the  proprietor  had  lived  on  $5,000.  There  would  then  have 
been  $15,000  to  add  to  the  permanent  capital  of  the  com- 
munity. This  invested  in  business  would  have  given  em- 
ployment to  as  many  laborers  as  though  it  had  been  used  in 
the  other  way.  At  the  end  of  one  year  it  may  have  little 
perceptible  effect  on  the  demand  for  labor  ;  but,  during  the 
second  year,  this  $15,000  reserved  from  the  first  year's  in- 
come will  be  still  in  existence.  There  will  be  also  the  profit 
accniing  from  the  investment.  Instead  of  being  wholly  de- 
stroyed, as  in  the  other  case,  it  will  now  furnish  opportunity 
for  at  least  a  few  more  laborers.  If  the  proprietor  con- 
tinues to  live  on  $5,000,  and  to  employ  the  remainder  of  his 
income  productively,  there  will  be  more  than  $30,000  to 
co-operate  with  labor,  instead  of  the  $20,000,  as  in  the  first 
instance.  The  next  year  this  additional  business-capital  will 
exceed  $45,000,  and  will  soon  go  up  to  $Co,ooo  and  $100,- 
000.  Not  only  will  there  be  a  constandy  increasing  amount 
of  capital,  but,  by  the  increase  of  production,  commodities 
will  be  cheapened  ;  and  thus  there  will  be  a  tendency  both 
to  an  increase  of  wages  and  an  enlargement  of  their  purchas- 
ing power.  Economy  and  not  prodigaUty,  on  the  part  of  the 
rich,  is  an  advantage  to  the  laborer. 


CHAPTER  VI. 

SOME   CONDITIONS   OF  HIGHEST  PRODUCTION. 

1.  It  is  only  by  the  application  of  principles  underlying 
political  economy,  that  we  come  to  the  conditions  of  the 
highest  production,  or,  in  other  words,  find  how  to  satisfy 
the  largest  range  of  desires,  to  the  greatest  extent,  at  the 
smallest  cost  of  labor. 

One  great  essential  to  this  end  is  the  combination  and 
division  of  labor.  It  may  seem  strange  that  two  apparently 
contradictory  terms  should  represent  entirely  harmonious 
conceptions.     But  we  shall  see  this  to  be  actually  the  case. 

We  need  at  this  point  to  recall  what  has  already  been  said 
on  the  subject  of  Association  and  Individuality.  We  are 
made  to  be  mutually  dependent.  From  the  cradle  to  the 
grave,  most  of  our  wants  are  supplied  by  others  than  our- 
selves. A  full  complement  of  human  qualities  is  found 
only  in  the  aggregate  of  humanity.  Every  one  lacks  some- 
thing that  some  other  can  supply. 

But  in  order  to  association,  as  we  have  seen,  there  must 
be  difference.  Two  persons  just  alike  would  have  no  need 
of  each  other.  Mutual  dependence  is  in  the  inverse  ratio 
of  similarity.  If  one  man  be  blind  but  otherwise  physically 
sound,  and  another  have  good  eyes  but  no  legs,  the  blind 
man  can  carry  the  legless  one  on  his  shoulders ;  while  the 
latter  directs  the  former's  course,  and  warns  him  of  any 
34 


CONDITIONS  OF  HIGHEST  PRODUCTION.   '     35 

danger  or  obstacle  in  the  way.  Two  legless  men  would  be 
of  little  use  to  each  other,  and  ''  if  the  blind  lead  the  blind, 
both  shall  fall  into  the  ditch." 

Association  and  individuality  are  the  two  characterizing 
forces  of  an  advancing  civilization.  They  are  analogous  to 
the  centripetal  and  centrifugal  forces  in  the  physical"  worid. 
Men  combine  to  produce  a  certain  result,  because  each  can 
contribute  something  which  another  cannot  so  well  or  so 
readily.  Hence  combination  is  not  only  consistent  with 
division  of  labor,  but  it  is  largely  dependent  upon  it. 

2.  Combination  or  co-operation  is  of  two  kinds,  —  simple 
and  complex.  The  former  is  illustrated  in  those  instances 
in  which  several  persons  unite  for  the  accomplishment  of  a 
result  which  could  not  be  effected  by  separate  workers  ex- 
cept in  much  more  than  the  proportionate  time.  There  are 
also  operations  which  can  be  performed  by  the  combination 
of  a  number  of  persons,  which  one  man  could  not  effect  m 
any  length  of  time  :  such  are  the  moving  and  placing  of 
heavy  timbers  and  stones,  the  management  of  ships  and  rail- 
way-trains, and  many  other  such  things. 

Complex  combination  is  where  several  persons  help  each 
other  by  following  different  employments.  Each  man  needs 
nearly  the  same  that  every  other  man  needs.  But,  while 
each  provides  for  only  one  kind  of  want,  he  provides  more 
than  enough  to  satisfy  his  own  desires  in  that  particular  re- 
spect, and  contributes  the  overplus  to  meet  that  same  want 
in  others.  As  all  others  do  the  same,  each  is  contributing 
to  meet  the  desires  of  one,  and  all  to  each.  The  shoe- 
maker, the  tailor,  the  carpenter,  the  cabinet-maker,  the 
blacksmith,  the  paper-maker,  the  tinman,  the  miner,  the 
painter,  etc.,  are  all  contributing  to  supply  the  farmer's 
needs ;  and  the  farmer  is  as  indispensable  to  the  needs  of 
all  of  them.     The  remarkable  thmg  about  it  is,  that  most 


36  POLITICAL   ECONOMY. 

of  these  persons  are  working  without  any  previous  concert  or 
mutual  understanding,  and  are  thus  unconsciously  co-oper- 
ating for  each  other's  advantage.  The  wants  of  each  are 
many  times  more  fully  met  in  this  way,  than  if  each  should 
undertake  to  supply  all  his  own  wants  ;  since  each  can  work 
to  the  best  advantage  if  he  confine  himself  to  the  few  kinds 
of  work  for  which  he  has  taste  and  aptitude. 

It  is  just  here  that  we  see  the  immense  civilizing  influ- 
ence of  this  separation  and  co-operation  in  labor.  Were 
every  man  compelled  to  produce  for  himself  whatever  he 
needs,  it  is  evident  that  his  provision  for  his  needs  would 
be  meagre,  and  hardly  obtained.  The  obstacles  to  acquisi- 
tion would  be  so  numerous,  that,  were  he  to  put  forth  the 
most  strenuous  efforts,  only  a  small  part  of  what  he  might 
desire  could  be  secured.  No  one  would  have  any  induce- 
ment to  obtain  much  beyond  the  bare  necessaries  of  life. 
There  would  be  the  scantiest  accumulations,  no  capital 
worthy  the  name,  and  consequently  no  public  works,  scarcely 
any  commerce,  little  culture,  no  art,  science,  or  literature,  — 
in  a  word,  no  civilization. 

3.  We  have,  so  far,  chiefly  considered  the  separation  of 
labor  into  different  industries,  each  of  which  ministers  to 
great  numbers  of  the  followers  of  other  occupations.  But, 
as  civilization  advances,  the  separation  is  carried  further. 
In  complicated  trades  the  work  is  divided  into  a  number  of 
processes.  The  increase  of  the  productive  power  of  labor 
by  this  means  is  almost  marvellous.  The  example  of  pin- 
making  has  been  used  as  an  illustration  of  this  ever  since 
Adam  Smith.  Formerly  there  were  in  this  occupation  eigh- 
teen distinct  parts.  An  instance  is  given  where  only  ten  per- 
sons were  employed,  some  of  them  performing  two  or  three 
operations.  With  ordinary  exertions  they  could  make  twelve 
pounds  of  pins  in  a  day,  or  about  forty-eight  thousand  pins 


CONDITIONS   OF  HIGHEST  PRODUCTION.         37 

of  average  size.  Each  person,  then,  on  an  average,  might 
be  regarded  as  making  forty-eight  hundred  in  a  day.  But 
we  are  assured  by  those  competent  to  judge,  that  if  all  had 
wrought  separately,  and  none  been  educated  to  a  particular 
process,  they  probably  could  not  have  made  twenty  pins 
apiece.  This  gives  an  increase,  through  combination  and 
division,  of  two  liiindred  and  forty  fold.  Mr.  Say^  gives  an 
illustration  from  the  manufacture  of  playing-cards,  where  the 
increase  was  two  hundred  and  fifty-eight  fold  by  the  same 
method.  This  seems  almost  incredible,  and  yet  there  are  so 
many  other  illustrations  that  there  can  be  no  doubt  on  the 
subject. 

4.  Among  the  benefits  of  the  division  of  labor  are  the 
following:  I.  The  increase  of  dexterity  in  the  workman. 
Persons  of  the  commonest  ability  gain  astonishing  facility  in 
a  little  time  by  concentrating  upon  one  kind  of  action.  A 
child  fastening  on  the  heads  of  pins,  it  is  said,  will  repeat 
an  operation  requiring  several  distinct  motions  of  the  mus- 
cles, one  hundred  times  a  minute  for  several  successive 
hours.  Adam  Smith  states,  that,  if  a  blacksmith  had  to  make 
nails  without  having  been  accustomed  to  the  work,  he  would 
not  make  more  than  two  or  three  hundred  bad  nails  in  a 
day.  But  boys  who  are  brought  up  to  that  special  work 
can  turn  out  twenty-three  hundred  good  nails  in  a  day. 

2.  There  is  a  saving  of  time  and  material,  {a)  In  pass- 
ing from  one  kind  of  work  to  another,  much  time  is  ordi- 
narily lost.  Neither  the  mind  nor  the  muscles  are  ready  for 
the  new  labor,  and  there  is  always  more  or  less  sauntering 
before  getting  adjusted  to  the  changed  conditions.  It  is 
true,  however,  that  there  is  something  of  an  offset  in  the 
fact,  that,  in  such  a  change,  a  rest  is  afforded  to  one  set  of 
muscles  while  another  set  is  called  into  action.  {F)  Time 
is  saved,  again,  in  learning  the  business.     To  master  a  com- 


38  POLITICAL   ECONOMY. 

plicated  trade  might  require,  say,  five  years ;  but  if  the  vari- 
ous processes  be  grouped  in  five  divisions,  and  each  of  five 
men  learn  one  of  these  in  a  year,  and  each  devote  himself 
to  that  which  he  learns,  then  twenty  years  of  time  will  be 
saved  in  learning  that  trade  by  these  five  men.  {c)  There 
is  also  saving  of  material.  In  learning  a  trade,  much  mate- 
rial is  commonly  spoiled.  If  the  diversity  of  operation  be 
great,  th-e  waste  will  be  proportionally  great.  This  would 
be  greater  where  each  learns  a  whole  trade  than  where  only 
a  single  process  is  learned. 

3.  Another  advantage  is,  that  inventions  to  abbreviate  or 
save  labor  in  a  particular  department  are  more  likely  to  occur 
to  one  whose  attention  is  exclusively  directed  to  that  work. 

4.  A  fourth  advantage  is  so  conspicuous  and  obvious  that 
it  is  remarkable,  that,  instead  of  being  the  first  noticed,  it 
was  not  observed  till  among  the  last.  It  is  that  of  classify- 
ing the  laborers  according  to  their  capability.  Different 
parts  of  a  trade  often  require  unequal  degrees  of  skill  and 
physical  strength.  By  allowing  those  who  have  the  least  of 
these,  to  do  the  simpler  and  lighter  parts  of  the  work,  the 
more  complex,  nicer,  and  heavier  can  be  given  to  those  more 
competent.  The  latter  would  not  only  do  more  work  than 
if  they  ranged  through  the  whole  business,  but  they  will  do 
a  portion  which  the  former  could  not  do  at  all,  and  would 
thus  be  unavailable  as  laborers.  This  exclusion  of  a  large 
proportion  of  laborers  would  make  the  work  much  more 
costly.  Take  again  the  illustration  of  pin-making.  Mr. 
Babbage  has  shown  that  some  portions  of  this  work  require 
very  considerable  skill.  Other  portions  can  be  performed  by 
persons  of  ordinary  ability,  and  in  them  young  boys  and 
girls  often  accomplish  as  much  as  experienced  and  skilled 
workmen.  An  instance  is  given  where  the  wages  ranged 
from  six  shillings  a  day  down  to  four  and  one-half  pence. 


CONDITIONS  OF  HIGHEST  PRODUCTION.        39 

Now,  if  all  these  operations  were  to  be  performed  by  each 
laborer,  only  the  six-shilling  workmen  could  be  employed, 
as  they  alone  could  do  certain  parts  of  the  work.  All  the 
others  would  be  shut  out,  the  best  workmen  would  get  lower 
wages,  and  the  cost  of  the  product  would  be  enhanced  from 
five  to  ten  fold. 

5.  There  is  also  the  advantage  which  comes  from  the 
multiplication  of  services.  The  express-companies,  devoting 
themselves  to  the  carrying  of  parcels  and  packages  of  goods, 
can  carry  a  hundred  or  a  thousand  of  these  with  many  times 
less  labor  than  all  who  have  goods  to  send  would  have  to 
expend  did  each  carry  his  own. 

6.  The  multiplication  of  copies,  as  is  done  by  a  printing- 
press,  or  in  founderies,  or  by  means  of  dies,  is  another  ex- 
ample. To  copy  out  by  hand  a  thousand  copies  of  the 
Bible  or  of  Shakspeare,  would  cost  five  hundred  or  a  thou- 
sand times  as  much  as  to  have  them  printed  where  several 
copies  are  struck  off  from  the  same  type. 

5.  But  there  are  certain  limitations  to  the  divisions  of 
labor.  I.  One  of  these  is  the  nature  of  the  employment. 
Some  occupations  admit  of  only  a  certain  number  of  divis- 
ions. In  watch-making,  it  is  said,  there  are  more  than  a 
hundred  distinct  branches  :  in  some  other  trades,  only  three 
or  four  are  possible.  Others  still,  while  capable  of  manifold 
division,  are  such  that  the  different  kinds  of  work  must  be 
done  at  different  seasons  of  the  year,  so  that,  if  one  made  a 
speciality  of  any  of  these,  he  would  needs  be  idle  a  good 
part  of  the  time  :  of  this  kind  is  agriculture. 

2.  A  second  limitation  is  found  in  the  demand  for  the 
product.  A  blacksmith  setting  up  his  forge  in  a  sparsely 
settled  neighborhood,  the  patronage  of  which  will  furnish 
occupation  for  only  one  man,  must  do  all  the  different  parts 
of  the  work  himself.     If  the  community  increases,  he  may 


40  POLITICAL  ECONOMY. 

employ  an  apprentice ;  and  continued  growth  may  furnish 
occasion  for  a  journeyman,  and  perhaps  more  than  one,  and 
the  divisions  take  place  accordingly. 

3.  Another  limitation  is  in  the  amount  of  capital  em- 
ployed in  the  business.  Where  there  is  but  little  capital,  the 
proprietor  can  employ  but  few  workmen.  He  can  purchase 
but  a  small  stock  of  material,  and  his  supply  of  tools  and 
apparatus  must  necessarily  be  small.  He  can  in  such  case 
set  only  a  limited  number  of  men  to  work,  even  if  he  could 
advance  the  amount  necessary  for  their  wages.  Conse- 
quently, there  can  be  but  a  small  division  of  labor. 

6.  There  are  some  disadvantages  as  well  as  advantages  in 
the  division  of  labor,  i.  Such  subdivisions  of  employment 
have  a  tendency  to  impair  physical  health.  They  afford  too 
little  variety  of  muscular  exertion.  While  this  is  not  uni- 
versally the  case,  it  is  too  often  so.  There  is  the  constant 
pressure  upon  certain  portions  of  the  body,  and  none  upon 
others.  There  is  a  want  of  balance.  There  are  also  cer- 
tain processes  which  require  an  unnatural  position,  which,  if 
long  continued,  is  likely  to  induce  deformity  and  perhaps 
disease.  This  liability,  though  perhaps  less  than  it  is  some- 
times made  to  seem,  is  still  actual,  and  demands  considera- 
tion. 

2.  It  diminishes  the  self-reliance  of  laborers.  It  is  apt  to 
generate  a  feeling  of  dependence,  since  the  worker  may  ac- 
quire the  habit  of  expecting  others  to  do  almost  every  thing 
for  him.  One  comes  to  regard  one's  self  as  only  an  element 
in  a  great  system,  —  a  small  portion  of  a  machine,  which,  as  a 
whole,  produces  certain  results.  There  are,  doubtless,  excep- 
tional instances,  in  which  separation  of  employment  develops 
individuality ;  but  it  oftener  has  the  opposite  effect. 

Closely  connected  with  this  is  the  consequence  that  the 
number  of  those  who  do  business  on  their  own  account  is 


CONDITIONS  OF  HIGHEST  PRODUCTION.        4I 

diminished.  It  is  not  well  that  the  proprietors  in  a  com- 
munity should  be  few.  Ownership,  responsibility,  the  con- 
ciousness  of  being  one's  own  master,  foster  manliness,  and 
tend  to  the  development  of  character.  It  is  true,  if  all  men 
were  proprietors,  the  interests  of  industry  might  suffer ;  but 
if  only  a  very  few  were  such,  it  would  suffer  still  more.  We 
should  seek  as  far  as  possible  to  avoid  the  evils  incident  to 
either  extreme. 

3.  A  third  disadvantage,  though  closely  connected  with  the 
second,  is  more  serious  than  either  of  the  others.  In  the 
minute  subdivisions  which  characterize  our  modem  indus- 
try, there  is  a  hinderance  to  mental  growth,  —  a  contracting 
and  belittling  influence  hard  to  resist.  When  a  workman 
works  all  day,  and  day  after  day,  boring  holes  or  turning 
spindles,  or  cutting  the  same  patterns  with  a  jig-saw,  it  re- 
quires much  effort  both  in  and  out  of  work-hours  to  keep 
the  mind  from  a  deterioration  of  which  it  is  sad  to  think.  I 
can  scarcely  conceive  how  any  man  of  even  moderate  intel- 
ligence can  be  content  to  confine  himself  for  any  consider- 
able time  to  such  sterile  operations.  It  is  true,  that,  under 
the  conditions  which  such  division  of  labor  implies,  there  are 
found  certain  compensations.  First,  by  this  means,  men  are 
brought  into  communication  wth  one  another  more  than 
they  would  otherwise  be.  Information  is  thus  gained,  in- 
quiries suggested,  and  thought  excited.  All  this  is  every  way 
wholesome.  Secondly,  the  very  fact  that  many  of  these 
minute  operations  can  be  performed  with  but  little  draught 
on  the  mind,  and  some  of  them  almost  automatically,  implies 
mental  leisure  in  which  thought  can  go  on  simultaneously 
with  work.  If  the  vacant  hours  be  only  moderately  im- 
proved, culture  and  development  need  not  be  wholly  wanting. 


CHAPTER  VII.  " 

CONDITIONS   OF   HIGHEST  PRODUCTION    {cotltint/ed). 

1.  Closely  connected  with  the  subject  of  combination 
and  division  of  labor,  is  that  of  the  diversificatio7i  of  indtistry. 
Upon  this  depends  to  no  small  extent  the  measure  of  the 
productiveness  of  a  community.  There  is  a  somewhat  prev- 
alent doctrine  which  is  antagonistic  to  this.  It  is,  that  the 
principle  of  the  division  of  labor  should  apply  to  separate 
communities,  as  well  as  to  the  different  individuals  of  the 
same  community.  This  doctrine  is  more  frequently  implied 
than  explicitly  stated. 

It  is  obvious  enough,  that  each  community  should  devote 
itself  to  such  industries  as  it  can  on  the  whole  pursue  to  the 
best  advantage ;  that  it  should  not  cherish  those  which  it 
cannot  thus  pursue.  In  other  words,  no  industry  should  be 
supported  merely  for  the  sake  of  the  industry.  But  neither, 
on  the  other  hand,  should  distribution  of  industries  to  differ- 
ent communities  be  practised  for  the  sake  of  this  distribu- 
tion. It  is  obvious,  that,  in  proportion  as  such  a  distribution 
takes  place,  there  must  be  a  diminution  of  the  diversity  in 
each  several  community.  If  each  society  should  confine 
itself  to  the  production  of  tvvo  or  three  commodities,  it  must 
depend  on  other  societies  to  furnish  it  with  most  of  the 
articles  which  it  may  need.     It  has  already  been  shown  that 

the  association,  combination,  and  commerce,  so  essential  to 
42 


CONDITIONS  OF  HIGHEST  PRODUCTION.       43 

the  prosperity  if  not  to  the  existence  of  a  community,  can 
exist  only  where  there  are  differences  ;  and  that  these  differ- 
ences must  exist  in  part  in  modes  and  forms  of  production. 
Hence  to  locate  the  differing  individuals  in  separate  com- 
munities, and  to  cultivate  a  similarity  in  each,  would  be  to 
put  commerce  at  a  disadvantage,  and  to  rob  men  of  the  vast 
benefits  of  one  chief  element  of  their  constitution. 

2.  In  every  considerable  community  there  are  a  great 
number  of  diverse  tastes  and  aptitudes,  many  of  which  can- 
not be  easily  adjusted  except  to  particular  employments ; 
and  unless  these  exist,  a  large  proportion  of  the  labor-force 
will  be  either  unapplied,  or  so  applied  as  to  lose  much  of  its 
legitimate  effect. 

It  is  not  only  that  more  and  better  work  will  be  done,  and 
therefore  that  greater  productiveness  will  ensue,  but  there 
are  a  thousand  things  done  which  would  otherwise  fail  of 
accomplishment,  and  a  thousand  things  utilized  which  would 
otherwise  be  wasted.  A  manufacturing  community  in  the 
midst  of  an  agricultural  region  not  only  furnishes  immediate 
exchange  which  must  otherwise  be  sought  at  great  expense 
of  time  and  transportation,  but  it  furnishes  a  market  for 
scores  of  commodities  which,  remote  from  such  a  community, 
would  be  substantially  valueless.  Few  are  aware  how  great 
is  the  number  of  objects  which  at  a  distance  from  towns  and 
cities  are  comparatively  useless,  but  which  in  their  imme- 
diate vicinity  would  constitute  a  source  of  wealth. 

Agriculture,  in  an  extended  section  where  it  is  nearly  the 
exclusive  business,  is  ever  an  employment  of  diminishing 
profit.  The  land  wears  out,  and  the  waste  both  of  labor 
and  capital  is  prodigious.  It  is  a  remarkable  fact,  that 
famines  are  more  frequent  and  more  appalling  in  exclusively 
or  chiefly  agricultural  regions  than  anywhicre  else.  We  can 
hardly  conceive  of  a  famine  as  possible  in  our  Eastern  States 


44  POLITICAL   ECONOMY. 

or  in  England  ;  but  in  the  most  fertile  regions  of  the  West, 
twice  within  the  last  twenty-five  years  there  have  been  ex- 
tensive and  disastrous  famines.  This  is  necessarily  inci- 
dental to  an  exclusively  agricultural  community.  If  there 
be  but  a  single  staple  production,  and  that  fails,  the  entire 
resources  fail ;  but  if  there  be  many  industries,  not  all  nor 
even  a  majority  of  them  are  likely  to  collapse  at  the  same 
time. 

But  this  is  only  one  aspect  of  the  evil  implied  in  a  small 
number  of  industries.  A  doctrine  already  presented  is,  that 
no  one  occupation  furnishes  scope  for  more  than  a  small 
fraction  of  the  varied  talent  existing  in  a  community.  "  If 
four  millions  are  obliged  to  be  rude  laborers,  when  three 
millions  of  them  might  be  skilled  artisans,  the  labor  of  one 
of  the  latter  being  supposed  to  be  equal  in  value  to  three 
of  the  former,  then  the  value  actually  created  is  to  the  value 
which  might  be  created  as  four  is  to  ten  :  in  other  words, 
the  yearly  product  of  the  national  industry  might  be  two 
and  a  half  times  greater  than  it  is,  and  the  yearly  unproduc- 
tive consumption  need  not  be  at  all  increased ;  since,  in 
either  case,  there  would  be  four  millions  of  people  to  be 
supplied  with  food  and  clothing  and  shelter."  ' 

3.  Another  condition  of  increased  production  is  unre- 
stricted labor,  and  freedom  of  competition.  But  this  free- 
dom must  be  real  and  practical,  not  merely  theoretical. 
The  power  of  the  members  of  the  community  to  associate 
must  not  be  hindered,  in  order  to  the  healthy  circulation 
previously  mentioned.  To  assure  and  preserve  this  free- 
dom, is  one  of  the  functions  of  government.  It  should  pro- 
tect each  member  of  society  against  fraud  and  violence.  It 
cannot  furnish  labor,  or  create  capital ;  it  cannot  repeal  the 
laws  of  nature,  or  enact  new  ones.     But  it  may  guard  against 

*  Bowen's  Political  Economy,  pp.  84,  83. 


CONDITIONS  OF  HIGHEST  PRODUCTION.        45 

the  destruction  of  the  operation  of  these  laws  by  artificial 
and  vicious  measures  devised  by  selfish  men.  It  may  do 
something,  at  least,  to  discourage  and  limit  combinations 
which  would  attempt  to  monopolize  advantages  in  the  inter- 
est of  the  few,  to  the  exclusion  of  the  many  for  whom  they 
were  intended,  —  schemes  to  prevent  free  and  natural  com- 
petition, and  to  force  labor  and  capital  into  unnatural  chan- 
nels, to  the  detriment  of  the  great  masses  of  producers  and 
consumers.  It  may  take  any  available  means  to  thwart  any 
movement  of  interested  foreign  parties  to  overwhelm  and 
destroy  the  nascent  industries  of  its  own  citizens,  as  they 
come  into  competition  with  those  of  the  former. 

4.  An  important  condition  of  increasing  productiveness 
is  found  in  general  education.  The  utility  of  education  in  its 
relation  to  human  society  is  twofold.  First,  a  certain  de- 
gree of  intelligence  in  the  masses  of  the  citizens  is  essential 
to  the  success,  or-even  the  existence,  of  a  republican  form 
of  government.  But  the  discussion  of  the  subject  in  this 
respect  belongs  rather  to  the  department  of  civil  polity  than 
to  that  of  political  economy. 

The  economical  advantage  of  education  consists  in  the 
skill,  discernment,  and  discrimination  which  it  gives  a  man 
for  his  work ;  the  ability  to  adapt  means  to  ends  ;  and,  in  a 
word,  power  over  nature,  so  that  he  can  the  more  readily 
avail  himself  of  her  resources,  and  command  her  services. 
Obviously  every  increase  of  this  power  is  an  increase  of 
productive  capability. 

It  has  always  been  admitted,  that  such  native  or  acquired 
intellectual  ability  as  enables  one  to  discover  new  forces 
in  nature,  or  to  apply  these  in  the  industries,  or  to  make 
new  combinations  of  forces  already  known,  is  a  vast  and  val- 
uable aid  to  production.  Not  less  is  the  estimate  to  be  put 
on  the  talent  to  organize  and  manage  great  business  enter- 


46  POLITICAL   ECONOMY. 

prises,  so  as  to  make  the  co-operation  of  labor  and  capital 
in  them  advantageous.  Yet  it  is  probable  that  the  benefits 
thus  resulting  from  education  have  been  largely  underesti- 
mated. The  increase  of  power  furnished  by  nature  through 
the  discoveries  of  science,  and  through  human  invention,  is 
altogether  incalculable.  The  steam-power  of  Great  Britain, 
years  ago,  was  estimated  to  be  equal  to  the  labor  of  six 
hundred  millions  of  men.  Thus  in  one  little  island,  con- 
taining less  than  one-fortieth  of  the  population  of  the  earth, 
there  has  been  developed  a  mechanical  power  equal  to 
nearly  or  quite  the  whole  human  working -force  of  the 
planet !  This  is  only  one  of  the  contributions  to  human 
productiveness  by  educated  mind.  Yet  much  of  this  dis- 
covery comes  from  moderately  educated  men  engaged  in 
manual  labor. 

There  is  another  fact  concerning  education  in  relation  to 
labor,  which  is  worthy  of  note.  It  is,  that  the  most  ordi- 
nary education  adds  to  the  efficiency  of  the  most  ordinary 
laborer.  Even  a  ditch-digger  will  do  better  work  by  reason 
of  a  rudimentary  education.  In  all  the  rising  grades  of  em- 
ployments, the  more  intelligent  the  laborer,  —  other  things 
being  equal,  —  the  more  effective  the  labor.  Usually,  too, 
when  the  laborer  is  even  moderately  educated,  he  is  more 
likely  to  be  frugal  and  prudent ;  and,  while  producing  more, 
he  saves  a  larger  part  of  that  which  is  produced,  thus  effect- 
ing a  double  increase  of  the  capital  of  the  community.  It 
also  adds  to  his  self-respect,  and  furnishes  a  motive  to  seek 
a  competence  and  independence,  and  so,  in  several  ways, 
contributes  to  the  end  for  which  it  has  inspired  the  hope. 

It  is  true,  that,  as  education  increases,  the  desires  of  men 
multiply,  and  the  consumption  will  be  greater.  But  con- 
sumption will  increase  less  rapidly  than  production  from  this 
cause.      Then,  too,  the  increased  desires  are  in  themselves 


CONDITIONS  OF  HIGHEST  PRODUCTION.        47 

a  stimulus  to  exertion,  and  tend  to  create  a  larger  demand 
for  the  results  of  labor.  Thus  there  is  no  assignable  hmit 
to  the  multiplication  of  human  desires  creating  a  demand 
for  those  results  of  human  effort  whereby  these  desires  are 
gratified. 

5.  Finally,  the  productiveness  of  a  community  depends 
in  no  small  degree  on  the  moral  character  of  its  members. 
In  order  to  any  considerable  productiveness,  as  we  have  seen, 
there  must  be  association,  combination,  and  mutual  depend- 
ence. In  order  that  these  may  exist,  men  must  have  con- 
fidence in  each  other.  There  must  be  individual  honor, 
integrity,  fidelity,  or  this  cannot  exist.  Then,  again,  unless 
there  be  security  for  property,  men  will  have  neither  much 
inducement  to  labor  nor  much  incentive  to  save  in  order  to 
accumulate  capital.  In  proportion  as  morality  is  at  a  low 
grade,  as  fraud  and  violence  are  rife,  or  as  peculation  and 
swindling  prevail  among  officials,  and  public  trusts  are  be- 
trayed, will  enterprise  languish,  capital  seek  safer  localities, 
and  thriftless  poverty  become  the  characteristic  of  the  com- 
munity. On  the  other  hand,  where  integrity  and  upright- 
ness abound  in  the  society,  there  will  be  security  to  property, 
capital  will  not  need  to  be  so  vigorously  hedged  about  with 
expensive  safeguards,  labor  will  superintend  itself  at  a  great 
saving  of  cost,  and  all  the  interests  of  the  community  will 
feel  the  favorable  effect. 


46342 


Book  Second. 


CONSUMPTION. 


CHAPTER   I. 

THE   NATURE   AND  THE   VARIOUS   FORMS   OF  CONSUMPTION. 

1.  Consumption  is  the  destruction  of  values.  Production 
implies  consumption.  In  general,  all  material  is  destroyed 
in  entering  into  new  forms  of  wealth.  Thus  leather  must 
be  destroyed  in  order  to  produce  shoes.  Flour  must  dis- 
appear in  the  manufacture  of  bread,  and  wheat  in  the  making 
of  fiour.  Every  kind  of  implement  or  machine  or  structure 
is  consumed  by  use.  This  consumption  may  be  immediate 
(that  is,  by  a  single  use),  or  it  may  be  gradual.  The  fuel 
that  we  bum  and  the  food  that  we  eat  are  examples  of  the 
former ;  tools,  bridges,  buildings,  and  aqueducts  are  exam- 
ples of  the  latter.  The  consumption  may  be  accomplished 
in  a  few  days  or  months,  or  it  may  be  protracted  through 
centuries. 

2.  The  value  which  disappears  in  consumption  is  not 
necessarily  lost.  The  value  of  the  leather  which  the  shoe- 
maker destroys  re-appears  in  the  shoes.  The  value  of  the 
lumber,  stone,  and  brick  consumed  by  the  builder  is  repro- 
duced in  the  house.  The  seed  which  is  cast  into  the  soil 
utterly  perishes,  but  it  furnishes  conditions  of  a  value  much 
greater  than  that  which  is  destroyed. 

It  is  in  this  way  that  wealth  increases ;  not  merely  by 
adding  to  the  valuable  things  already  existing,  but  by  destroy- 
ing many  of  these   that  there  may  issue  still  greater  value. 


52  POLITICAL   ECONOMY. 

The  prosperity  of  a  nation  is  not  inversely  as  the  consump- 
tion of  values,  nor  is  it  precisely  the  opposite.  Still,  if  there 
is  very  little  consumption,  there  is  very  little  increase  of  value. 
3.  Consumption  is  either  voluntary  or  involuntary.  The 
former  is  exemplified  in  the  instances  heretofore  noticed, 
where  man  destroys  one  commodity  either  for  the  purpose 
of  producing  another,  or  for  the  purpose  of  immediate  grati- 
fication. Of  the  latter,  we  have  instances  in  the  natural 
decay  of  objects,  as  the  rusting  of  iron,  the  mildew  of  cotton 
and  woollen  fabrics,  and  the  wearing  away,  by  attrition,  of 
gold,  silver,  and  other  metals ;  also  the  destruction  caused 
by  vermin.  Much  of  this  may  be  prevented  by  the  prudent 
foresight  which  sound  economy  enjoins,  but  much  loss  will 
inevitably  take  place.  A  great  deal  of  consumption  comes 
by  what  is  called  accident.  Much  destruction  is  caused  by 
fires,  steam-boiler  explosions,  floods  and  tornadoes,  earth- 
quakes and  volcanic  eruptions. 


CHAFIT.R    II. 

PRODUCTIVE   AND   UXPRODUCmT   CONSUMPTION. 

1.  Voluntary  consumption  is  cither  productive  or  unpro- 
ductive. 'I'hc  former  is  when  the  material  appears  in  a  new 
form  and  with  higher  value,  as  cloth  made  into  garments, 
and  iron  into  hardware  ami  cutlery.  Unproductive  con- 
sumption occurs  both  in  the  instances  previously  men- 
tioned, —  of  consumption  by  natural  decay,  and  that  which 
comes  by  accident,  —  and  m  cases  where  gratification  of  de- 
sire is  the  sole  ol)ject  sought  and  achieved,  as  when  one  eats 
and  drinks  simply  for  enjoyment,  and  without  reference  to  the 
repair  of  nature's  waste  or  the  nourishment  of  the  system. 

It  is  not  always  easy  to  discriminate  between  these  two 
kinds  of  consumption.  We  reailily  see  the  difference  be- 
tween a  man's  drinking  a  (juantity  of  whiskey,  —  not  because 
it  will  helj)  in  the  perfomiance  of  any  work,  but  because  he 
likes  it,  —  and  the  scattering  of  a  quantity  of  seed  over  the 
ground  in  the  sj)ring.  There  is  no  doubt  that  one  of  these 
acts  is  productive,  and  the  other  unprotluctive.  But  there 
are  cases  where  the  distinction  is  less  clear. 

It  is  not  necessarily  a  case  of  unproductive  consumption, 
when  one  destroys  value  for  the  sake  of  gratifying  some 
desire.  Probably  a  majority  of  men  eat  and  drink  simply 
because  they  desire  food,  having  no  thought  of  any  ulterior 
object.     Vet  this  eating  and  drinking  are  absolutely  essential 

53 


54  POLITICAL   ECONOMY. 

to  productive  labor.  The  wealth  consumed  in  this  way 
re-appears,  to  a  large  extent,  in  the  products  of  human 
industry. 

2.  Still  there  is  much  really  unproductive  consumption, — 
a  destruction  of  value  in  the  place  of  which  no  other  value 
appears.     There  are,  for  instance,  men  and  women 

"  who  creep 
Into  this  world  to  eat  and  sleep, 
And  know  no  reason  why  they're  born, 
But  simply  to  consume  the  corn." 

Vast  quantities  of  wealth  are  consumed  in  riotous  living, 
in  greedy  and  vulgar  extravagance,  and  unmeaning  magnifi- 
cence. There  is  also  much  consumption  designed  to  be 
productive,  but  failing  of  its  end  through  misdirection.  In 
these  ways,  much  wealth  is  consumed,  with  no  consequent 
product. 

3.  It  is  not  always  easy  to  draw  the  line  bet\veen  the 
conveniences  of  life  and  its  luxuries ;  nor  can  the  extent  to 
which  the  latter,  in  any  sense  of  the  term,  are  allowable,  be 
precisely  indicated.  What  to  one  class  of  persons  may  be  a 
luxury,  to  another  class  may  be  almost  a  necessity.  So 
what  might  in  one  age  have  been  a  rare  and  expensive  in- 
dulgence, is  in  an  advanced  age  among  the  most  ordinary 
conveniences.  I  call  special  attention  to  three  kinds  of 
consumption.' 

I.  There  is  the  consumption  necessary  to  life  and  the 
performance  of  productive  labor.  The  word  necessary  is 
used  here  in  its  liberal,  rather  than  its  restricted,  sense.  The 
absolute  necessities  of  human  life  are  very  few.  It  does  not 
even  require  much  to  keep  a  man  in  working  condition. 
But  to  keep  him  where  there  is  a  larger  kind  of  living,  and 

'  See  Ruskin's  Political  Economy  of  Art. 


coNSUMP  t/on:  5  5 

where  his  energies  of  both  body  and  mind,  together  with 
the  moral  qualities  which  render  him  the  most  efficient,  are 
at  their  best,  the  consumption  must  be  somewhat  more 
generous. 

Besides  subsistence,  there  must  be  materials,  tools,  and  a 
variety  of  conditions  involving  the  destruction  of  value.  It 
is  desirable  to  sustain  a  man,  not  as  a  mere  savage,  but  to 
give  him  the  largest  possible  volume  of  human  life ;  and  the 
civilized  man,  it  will  be  admitted,  lives  a  broader  life  than 
the  savage.  We  are  not  to  forget  that  the  object  of  political 
economy  is  rather  to  enhance  the  value  of  man  than  the 
multiplication  of  material  wealth  or  the  increase  of  com- 
merce, except  as  the  latter  are  conditions  of  the  former. 

2.  A  second  kind  of  consumption  is  of  such  articles  as 
minister  to  physical  enjoyment,  and  meet  a  certain  low  order 
of  mental  appetencies.  They  are  not  essential  to  sustain 
life,  or  to  render  it  more  efficient.  On  the  contrary,  they 
often  impair  the  vigor  and  competence  of  the  person.  At 
the  best  they  simply  gratify  certain  desires,  without  adding 
any  thing  to  the  value  of  the  man.  To  this  category  belong 
mere  dainty  food;  gold  and  jewels,  and  other  ornaments 
worn  for  their  showiness  and  not  for  any  artistic  excellence ; 
gay  and  costly  apparel,  in  which  the  gayety  and  costliness  are 
the  main  features.  These  constitute  a  class  of  luxuries  that 
are  in  every  sense  non-productive.  They  favorably  affect 
neither  the  individual  nor  society,  and  are,  for  the  most  part, 
hurtful  to  both. 

3.  But  not  all  consumption,  the  object  of  which  is  to 
gratify  desire,  is  to  be  reckoned  in  this  category.  There 
are  certain  pleasures  which  ennoble  and  really  enrich  those 
who  participate  in  them.  There  are  desires,  the  gratification 
of  which  enlarges  the  volume  of  one's  being.  They  are  re- 
lated not  so  much  to  man's  productive  capability  as  to  that 


56  POLITICAL  ECONOMY. 

which  is  the  final  cause  of  all  production,  and  to  which  all 
wealth  is  only  a  means.  The  labor,  materials,  implements, 
and  whatever  else  is  consumed  in  the  production  of  the 
works  or  effects  of  genuine  art,  result  in  the  most  real  wealth 
that  exists.  By  this  is  meant  not  merely  pictures,  statues, 
books,  carved  work,  tasteful  tapestries,  and  similar  objects 
which  can  be  bought  and  sold  ;  but  also  oratorios  which  may 
be  heard  but  once  ;  magnificent  parks,  to  which  you  may  be 
admitted,  but  which  you  may  never  own ;  great  actors  and 
singers,  whose  genius  may  be  exhibited  to  others,  but  not 
possessed  by  them.  It  is  true,  that  much  which  properly 
belongs  here  may  be  so  consumed  as  to  deserve  only  a 
place  in  the  second  class ;  but  it  may  also  have  those  higher 
and  nobler  uses  which  imply  production  in  the  best  sense. 


CHAPTER   III. 

PUBLIC   CONSUMPTION. 

1.  Public  consumption  is  the  expenditure  of  means  for 
society  in  its  aggregate  capacity.  It  has  reference  princi- 
pally to  the  cost  of  the  operation  of  those  agencies  which 
are  implied  in  the  term  government.  The  reasons  for  the 
necessity  of  such  expenditure  have  already  been  given.  The 
purposes  to  which  such  consumption  properly  cohtributes 
may  be  grouped  as  follows  :  — 

{a)  The  support  and  administration  of  government.  This 
embraces  compensation  to  executive,  legislative,  and  judicial 
officers,  and  expenditure  for  public  buildings,  {b^  Works 
of  public  convenience.  Here  are  included  the  paving  and 
lighting  of  streets,  water-works,  sewerage,  the  light-house  sys- 
tem, and  some  others,  (r)  For  the  purpose  of  advancing 
science  and  promoting  intelligence  by  means  of  exploring 
expeditions,  geological  sur\'eys,  meteorological  and  astronom- 
ical obser\'ations,  etc.  (//)  The  promotion  of  popular  edu- 
cation. (^)  The  support  of  the  poor,  and  relief  of  the 
afflicted.     (/)  The  national  defence. 

2.  It  would  scarcely  be  possible  to  lay  dowTi  any  very 
definite  general  rule  respecting  the  expenditures  economi- 
cally allowable  for  any  of  the  above  purposes.  Still  some 
limitations  may  be  indicated. 

As  to  the  compensation  which  an  ■  officer  of  the  govem- 

57 


58  POLITICAL   ECONOMY. 

ment  should  receive,  there  has  been  some  difference  of  opin- 
ion. On  the  one  hand,  it  has  been  urged  that  it  should  be 
large  and  liberal ;  on  the  other,  that  it  should  be  of  such  a 
moderate  amount  as  would  in  itself  be  no  temptation  to  any 
to  seek  the  office.  Some  claim  that  the  honor  and  respect 
which  is  attached  to  a  position  of  public  trust  is  in  itself  a 
considerable  remuneration.  No  doubt  there  is,  in  a  certain 
sense,  something  in  this.  In  Great  Britain,  members  of  Par- 
liament serve  without  pecuniary  reward.  But  it  has  been 
well  said,  that  to  require  men  who  by  education,  character, 
and  experience  are  competent  to  serve  the  public  gratui- 
tously, or  with  no  other  reward  than  the  honor  and  respect 
attached  to  the  office,  is  to  throw  all  such  offices  into  the 
hands  of  the  rich  and  those  who  are  able  to  gi\'e  their  time 
to  the  public.  In  this  way  some,  at  least,  of  the  best  talent 
for  the  direction  of  public  affairs  would  be  excluded  from 
participation  in  the  government.  The  men  who  are  pecu- 
niarily able  to  render  gratuitous  public  sendee  comprise  a 
comparatively  small  class,  and  the  number  of  them  possess- 
ing the  highest  order  of  ability  is  not  likely  to  be  sufficient 
for  the  duty  required. 

What  has  been  said  on  the  question  of  any  salary  is  appli- 
cable to  that  of  a  large  or  a  small  salary.  The  compensation 
should  at  least  be  such  as  the  same  ability  would  command 
in  any  other  equally  important  business.  But  it  must  also 
be  considered,  that  a  man  in  a  public  office,  especially  if  it 
be  a  prominent  one,  is  obliged  to  adopt  a  somewhat  more 
expensive  style  of  living  than  one  in  a  private  station.  There 
is  a  dignity  appropriate  to  such  a  situation,  with  which  the 
expenditures  of  the  incumbent  will  properly  enough  be  ex- 
pected to  correspond.  Under  a  republican  form  of  govern- 
ment, the  demand  for  this  is  less  imperative  than  under  a 
monarchy ;  and,  under  any  form  of  government,  it  is  liable 


PUBLIC  CONSUMPTION.  59 

to  be  carried  to  excess.  Still  some  consideration  is  due  to 
it.  There  should  be  neither  meanness  on  the  one  hand,  nor 
extravagance  on  the  other.  There  should  always  be  such 
salaries  as  will  command  the  best  abilities ;  and  these  should 
be  secured  on  their  own  account,  and  the  officer  held  to  the 
same  accountability  as  a  person  in  any  other  responsible 
position. 

What  shall  be  the  limit  of  expenditures  in  the  construction 
of  public  buildings?  About  one  point,  there  can  be  little 
dispute.  There  should  be  the  least  possible  expense  com- 
patible with  the  largest  possible  advantage.  One  extreme 
would  be  the  cheapest  structures  which  could  be  made  to 
answer  for  the  transaction  of  the  public  business.  They 
would  be  built  in  the  plainest  style,  and  with  no  regard  to 
art  or  beauty.  The  opposite  extreme  would  be  to  make 
them  extravagantly  costly  and  magnificent,  till  the  main  de- 
sign would  be  lost  sight  of  in  the  si)lendor  of  the  adorn- 
ments. There  is  a  mean  somewhere  between  niggardliness 
on  the  one  hand  and  expensive  ostentation  on  the  other. 
It  is  for  a  nation,  as  well  as  for  an  individual,  to  make  a 
reasonable  use  of  art ;  and  it  is  not  essential  to  public 
economy  that  the  public  expenses  should  be  only  in  the 
line  of  the  necessary  and  the  ordinary. 

3.  The  propriety  of  pubhc  expenditure  for  the  purpose  of 
general  education  has  been  incidentally  but  pretty  fully  dis- 
cussed in  its  relation  to  production.  It  is  evident,  if  there 
is  to  be  to  any  considerable  extent  an  education  for  the 
masses,  the  expense  of  it  must  be  borne  by  the  community 
as  a  whole.  It  is  scarcely  possible  to  consider  the  subject  in 
any  of  its  bearings  except,  in  part  at  least,  under  this  aspect. 
The  duty  of  the  government,  as  the  agent  of  the  whole 
society ;  the  necessity  of  education  to  the  existence  and 
permanence  of  popular  government  \  the  moral  consequences, 


6o  POLITICAL   ECONOMY. 

on  the  one  hand,  of  its  encouragement,  and,  on  the  other,  of 
neglecting  it ;  and  the  vast  economical  benefit  resulting  from 
it,  —  are  so  universally  recognized  among  us,  that  it  is  un- 
necessary to  add  to  what  has  been  said. 

Closely  connected  with  expenditures  for  education  are 
those  for  the  promotion  of  scientific  discovery  and  the  dif- 
fusion of  intelligence.  Very  many  of  the  expeditions,  in- 
vestigations, and  other  measures  for  these  purposes,  are  of 
a  character  which  would  prevent  their  being  carried  forward 
by  private  parties.  The  results  which  come  from  them  are 
of  vast  benefit,  not  merely  to  some  particular  class,  but  to 
the  community  as  a  whole.  Our  own  government  some- 
times, through  these  agencies,  performs  services  the  value  of 
which  to  our  own  country  is  a  hundred-fold  greater  than 
that  consumed  in  their  maintenance. 

4.  The  question  of  pauperism  is  one  of  serious  interest  in 
all  our  modern  communities.  It  is  true  that  the  theories  of 
certain  writers  imply  that  it  is  not  a  matter  pertaining  to 
political  economy  at  all,  but  rather  one  of  benevolence 
and  charity,  such  as  a  nation,  in  its  corporate  capacity,  can- 
not be  supposed  to  exercise.  Some  hold  that  the  public 
support  of  the  poor  who  are  made  so  by  the  increase  of 
population  beyond  the  increase  of  capital,  or  who  have  be- 
come so  by  improvidence,  is  an  interference  with  the  laws 
of  nature  and  the  Divine  appointments.  But,  however  posi- 
tive these  teachers  are  in  asserting  such  theories,  few  of  them 
would  be  forward  in  putting  them  in  practice.  For  they  are 
not  inhumane  men  :  it  is  only  one  instance  among  many 
where  men  are  better  than  their  creeds. 

But  it  is  not  difficult  to  show,  that,  to  a  certain  extent,  the 
public  support  of  those  who  are  not  able  to  support  them- 
selves is  a  matter  of  economy,  as  well  as  of  charity.  In  any 
case  it  is  certain  that  no  civilized  community  can  be  found 


PUBLIC   CONSUMPTION.  6 1 

in  our  day,  where,  whether  prompted  by  humanity  or  by 
some  other  impulse,  help  will  not  be  forthcoming  to  the 
unfortunate.  Since  this  is  so,  the  question  is,  how  to  make 
the  provision  as  effectual  as  possible,  and  at  as  little  cost. 
In  many  nations,  there  is  no  general  arrangement  by  the 
government  for  the  relief  of  the  needy.  There  mendicancy 
takes  the  place  of  pauperism,  and  is  unquestionably  far  more 
expensive  as  well  as  far  more  deleterious.  In  these  nations, 
as  in  most  others,  there  are  various  eleemosynary  institutions, 
whose  object  is  to  relieve  the  needy.  Provision  is  also  made, 
to  some  extent,  by  churches  and  mutual-aid  societies  and 
benevolent  associations.  But  after  all  that  private  benefi- 
cence can  do,  even  when  most  efficiently  organized,  there 
will  still  be  many  cases  which  it  cannot  reach. 

Of  the  method  of  relief,  a  few  words  must  suffice.  It  is 
obviously  better  that  the  system  of  caring  for  the  poor 
should  be  locaj  ;  that  is,  it  should  pertain  to  the  cities,  towns, 
or  counties,  rather  than  to  any  larger  political  divisions.  It 
is  hardly  possible  for  the  government  of  any  extensive  terri- 
tory to  ascertain,  and  properly  treat,  the  poor  of  every  local- 
ity. But  the  authorities  of  a  town  or  of  a  city  ward  can 
more  easily  comprehend  the  wants  of  those  within  their  own 
limits,  and  relieve  their  wants  with  better  adaptations  and 
greater  economy,  than  could  be  done  by  a  general  govern- 
ment. 

5.  The  greatest  and  most  ruinous  consumption  that  takes 
place,  in  a  palpable  way,  is  that  which  is  implied  in  war.  If 
there  is  not  more  actual  and  ruthless  waste  of  wealth  in  this 
than  in  any  other  way,  it  is  at  least  more  direct  and  obvious 
here  than  elsewhere.  Without  taking  time  to  discuss  the 
methods  by  which  wars  may  be  prevented,  it  may  be  ad- 
mitted, that,  in  the  present  moral  condition  of  humanity,  war 
is  a  possibility  to  which  any  nation  is  liable.     Self-defence  is 


62  POLITICAL   ECONOMY. 

a  law  of  society,  as  well  as  of  individual  being.  Hence  all 
nations  are  expected  to  repel  foreign  invasions,  and  to  re- 
press domestic  insurrection.  All  force  used  in  the  execution 
of  the  laws  is  war  in  embryo.  It  follows,  then,  that  the  vast 
expenditures  for  war  are  not  in  every  case  uneconomical. 
When  forced  upon  a  nation  by  the  alternative  of  subjugation 
or  vigorous  self-defence,  the  expenditures  for  this  purpose 
are  as  legitimate  as  those  of  the  government  for  any  other 
purpose. 

The  liability  to  such  a  condition,  too,  implies  the  propriety 
of  a  constant  preparation  for  it.  Indeed,  this  is  one  of  the 
means  of  preventing  it.  This  implies  military  defences,  as 
forts  and  fortifications ;  also,  collections  of  all  sorts  of  arms 
and  materials  in  arsenals  and  military  depots.  There  must 
be  at  least  the  nucleus  of  an  army,  if  not  a  considerable 
number  of  armed  men,  even  in  time  of  peace ;  and,  in  any 
case,  such  an  enrolment  of  able-bodied  men,  and  such  en- 
couragement of  military  training,  as  will  furnish  the  elements 
of  an  effective  soldiery.  To  this  end,  too,  there  must  be 
military  and  naval  schools  for  the  education  of  men  com- 
petent to  become  officers  and  engineers.  There  must  be 
vessels  of  war,  navy-yards,  and  the  armament  and  material 
implied  in  these.  The  costliness  is  very  great :  it  forms  an 
important  part  of  the  expenditure  of  every  government. 

But  while  so  much  is  admitted,  there  is  in  many  countries 
an  expenditure  in  this  respect  which  is  almost  incredibly 
uneconomical.  In  the  five  great  nations  of  Europe,  the 
number  and  cost  of  the  standing  armies,  as  gathered  from  the 
statistics  of  a  few  years  ago,  are  about  as  follows.  In  Austria 
the  army  consists  of  280,000  men,  and  costs  ^45,000,000  a 
year.  France  has  an  army  of  430,000,  at  a  cost  of  about 
$100,000,000.  The  German  Empire  maintains  a  force  of 
420,000,  at  a  cost  of  nearly  $90,000,000.     Great  Britain  has 


PUBLIC  CONSUMPTION.  63 

200,000  men,  costing  $70,000,000.     Russia  has  800,000,  at 
a  cost  of  about  $117,000,000. 

Here,  then,  we  have  in  five  nations,  and  in  time  of  peace, 
more  than  2,000,000  men,  comprising,  of  course,  the  most 
vigorous  and  valuable  men  in  their  several  communities, 
taken  from  the  ranks  of  productive  industry,  and,  instead  of 
adding  to  the  wealth  of  the  community,  subtracting  from  it 
by  large  unproductive  consumption.  Four  of  these  nations 
support  heavy  naval  establishments,  involving  additional  vast 
expenditures,  and  the  absorption  of  many  men. 


Book  Third. 


EXCHANGE, 


CHAPTER  I. 

PRINCIPLES   WHICH    FORM   THE   BASIS   OF   EXCHANGE. 

1.  Exchange  is  the  mutual  and  voluntary  transfer  of  the 
right  of  property  held  by  different  persons.  This  definition 
implies  three  things  :  i .  That  there  is  such  a  thing  as  a 
right  of  property.  This  right  is  universally  acknowledged, 
except  by  a  few  extremists  and  doctrinaires.  It  arises  from 
the  creation  of  value  through  labor.  The  advantage  thus 
achieved  naturally  belongs  to  the  parties  putting  forth  the 
labor,  if  it  be  the  result  of  their  labor  alone.  If  this  labor 
be  united  with  capital  in  the  production,  then  a  propor- 
tionate part  belongs  to  the  laborer,  and  the  remainder  to  the 
owner  of  the  capital.  Each  owner  has  the  right  to  trans- 
fer his  ownership  to  another.  2.  In  order  to  an  exchange, 
this  transfer  must  be  mutual.  If  only  one  of  the  parties 
makes  a  transfer,  and  there  is  no  consideration,  it  is  a  gift. 
3.  It  must  also  be  voluntary.  If  one  is  forced  to  relinquish 
one's  right,  it  may  be  robbery  :  it  is  not  exchange. 

2.  The  one  great  and  essential  want  of  man  is  association. 
We  are  created  with  divers  abilities,  tastes,  and  aptitudes. 
These  constitute  our  individuality,  which,  as  we  have  seen, 
is  not  only  compatible  with  association,  but  necessary  to  it. 
It  is  the  very  diversity  of  human  character  which  makes 
men  dependent  on  one  another,  and  thus  renders  association 
indispensable.     It  is  this  general  principle  which  underlies 

67 


68  POLITICAL   ECONOMY. 

exchange.  It  is  the  same  as  that  which  gives  rise  to  the 
combination  and  division  of  labor  in  production.  There  are 
usually  some  very  few  kinds  of  labor  to  which  each  indi- 
vidual is  adapted.  Yet  the  variety  of  productive  work  is 
so  great  that  each  may  easily  find  some  place  in  which  to 
exercise  his  particular  gift.  But,  while  man  is  thus  limited 
in  his  individual  productive  capabilities,  his  desires  and  wants 
are  almost  limitless.  Each  can  produce  much  more  of 
one  commodity  than  he  can  use ;  but  he  can  and  will,  if 
possible,  consume  many  more  than  he  can  produce.  He 
can  create  a  single  kind  of  value  :  he  desires  a  thousand 
kinds.  Hence  arises  exchange.  It  is  this  which  makes 
human  society.  Commerce  is  a  necessity  of  man's  nature  : 
it  is  the  means  that  binds  up  together,  and  holds  in  harmony, 
the  multifarious  elements  and  interests  of  a  community. 

3.  The  same  general  principles  govern  in  exchanges  be- 
tween nations  and  remote  communities.  Yet  it  is  to  be 
noted  and  particularly  considered,  that  the  diversity  existing 
between  individuals  must  be  greater  than  that  between  com- 
munities. The  reasons  for  this  have  already  been  given. 
That  the  majority  of  individual  occupations  should  exist  in 
each  community,  rather  than  be  distributed  among  several,  is 
obvious.  Yet  God  has  so  ordered,  that  there  are  natural 
diversities  in  nations,  as  well  as  in  individuals.  Every  nation 
has  some  capability  or  facility  which  no  other  has. 

4.  The  words  commerce  and  trade  are,  in  common  conver- 
sation and  by  most  writers,  used  as  nearly  synonymous  and 
interchangeable.  Mr.  Carey  makes  a  clear,  and,  as  it  seems 
to  me,  a  reasonable  distinction  between  these  terms,  and  as- 
signs to  each  a  peculiar  meaning.  Commerce  he  defines  as 
the  intercourse  of  men  with  each  other  in  the  exchange  of 
services,  commodities,  or  ideas.  Ti-ade  is  the  business  of 
making  exchanges/<?r  others.    Commerce  is  the  object  sought 


THE  BASIS  OF  EXCHANGE.  69 

to   be   accomplished :    trade  is  the  agency  by  which  it  is 
accomplished. 

There  are  certain  obstacles  to  direct  exchange,  which  can- 
not be  surmounted  except  by  some  kind  of  intermediate 
agency,  and  this  makes  the  trader  necessary.  In  this  respect 
and  to  this  extent,  trade  aids  instead  of  antagonizing  com- 
merce. It  is  certainly  better  for  the  community,  that  there 
be  places  of  resort  where  every  one  is  likely  to  find  that  of 
which  he  is  in  want,  than  to  have  to  seek  it  among  a  variety 
of  producers.  Especially  is  this  the  case  if  the  article  is  not 
produced  in  the  vicinity.  So,  also,  if  one  have  an  article  of 
which  he  wishes  to  dispose,  it  is  better  to  have  some  place 
where  he  is  practically  sure  of  finding  a  purchaser,  than  to 
spend  days  in  the  search  for  one.  But  the  greater  the  number 
of  commodities  produced  among  themselves,  and  which  are 
needed  by  members  of  the  same  community,  the  fewer  will 
be  the  traders  necessary  to  be  employed,  and  the  less  costly 
will  be  the  process  of  exchange. 


CHAPTER  II. 

THE   LAW   OF   EXCHANGE. 

1.  The  general  law  of  exchange  is  value  for  value.  This 
is  implied  in  one  of  our  previous  statements  concerning  the 
essential  nature  of  value ;  namely,  that  it  is  the  quantity  of 
one  commodity  which  may  be  equitably  exchanged  for  a  ^ 
given  quantity  of  another.  It  will  be  still  more  clearly  seen 
if  we  recall  our  final  definition  :  Value  is  our  esHfuate  of  the 
sacrifice  requisite  to  secure  the  possession  of  a  desired  object. 
This  sacrifice,  as  we  have  seen,  usually  involves  both  labor 
and  abstinence.  It  is  sometimes  spoken  of  as  the  cost  of 
production,  though  the  meaning  of  this  expression  is  some- 
what modified  in  use.  But  the  amount  of  labor  implied  in 
the  production  of  a  commodity  is  primarily  and  substan- 
tially what  is  meant  by  its  cost. 

Now,  when  two  commodities  come  into  the  market,  they 
will  exchange  for  each  other  in  quantities  which  will  be  in- 
versely as  the  cost  of  production.  If  it  require  the  labor 
of  one  day  to  produce  a  pair  of  shoes,  and  the  labor  also  of 
a  day  to  produce  three  bushels  of  oats,  then  the  rule  of 
exchange  would  be  three  bushels  of  oats  for  a  pair  of  shoes. 
If  it  costs  as  much  to  produce  sixty  pounds  of  wheat,  and 
bring  it  to  the  market,  as  it  does  to  produce  and  bring  to 
the  market  five  pounds  of  beef,  then  the  value  of  the  latter 
is  the  same  as  that  of  the  former ;  and  they  may  be  equitably 
70 


THE  LAW  OF  EXCHANGE.  7 1 

exchanged  for  each  other.     This  is  the  natural  rule,  and  this 
is  what  is  meant  by  value  for  value. 

2.  There  are,  however,  various  conditions  which  modify  the 
operation  of  this  law.  The  chief  of  these  arises  from  the 
relations  of  supply  and  demand  to  normal  value.  Of  these  I 
shall  speak  hereafter.  At  present,  let  us  recall  the  fact  that 
value  is  a  relative  term.  For  this  reason,  there  can  be  no 
such  thing  as  a  getieral  rise  or  fall  of  values.  If  the  value 
of  any  one  thing  rises  or  falls,  that  of  something  else  must 
do  the  opposite.  If  all  commodities  are  put  in  two  classes, 
the  value  of  one  being  expressed  in  terms  of  the  other,  they 
cannot  both  lose  or  gain  at  the  same  time,  any  more  than 
the  two  arms  of  a  balance  can  ascend  or  descend  at  the  same 
time.  If  the  value  of  the  one  is  increased,  the  value  of  the 
other  is  diminished  in  an  exactly  corresponding  ratio.  So, 
if  the  value  of  thirty  or  forty  or  a  hundred  articles  change, 
there  must  be  a  corresponding  opposite  change  in  the  value 
of  some  other  article  or  articles.  If  the  value  of  the  aggre- 
gate of  all  commodities  save  one  be  diminished,  the  value 
of  that  one  will  be  increased  in  the  exact  corresponding 
ratio.  It  makes  no  difference  whether  this  be  leather  or  cloth 
or  wheat  or  money. 

3.  We  now  come  to  consider  supply  and  demand  in  rela- 
tion to  value.  The  natural  value  of  a  commodity  is  that 
which  corresponds  with  the  cost  of  its  production  :  it  is  the 
central  value,  or  that  toward  which  the  market  value  is  "  con- 
stantly gravitating,  and  any  deviation  from  which  is  but  a 
temporary  irregularity,  which,  the  moment  it  exists,  sets 
forces  in  motion  tending  to  correct  it.  On  an  average  of 
years  sufficient  to  enable  the  oscillations  on  one  side  the  cen- 
tral line  to  be  compensated  by  those  on  the  other,  the  mar- 
ket value  agrees  with  the  natural  value ;  but  it  very  seldom 
agrees  with  it  at  any  particular  time.     The  sea  everywhere 


'^2  POLITICAL   ECONOMY. 

tends  to  a  level,  but  it  never  is  at  an  exact  level.  Its  sur- 
face is  always  ruflfled  by  waves,  and  often  agitated  by  storms. 
It  is  enough  that  no  point,  at  least  in  the  open  sea,  is  per- 
manently higher  than  another.  Each  point  is  alternately 
elevated  and  depressed ;  but  the  ocean  preserves  its  level."  ' 

In  attributing  to  supply  and  demand  the  cause  of  this 
fluctuation  of  values,  is  implied  the  necessity  of  explaining 
these  terms,  not  merely  in  their  intrinsic  signification,  but  in 
their  relation  to  each  other.  To  define  them  superficially, 
as  applied  to  commercial  affairs,  is  not  difficult.  Thus  supply 
may  be  regarded  as  the  total  amount  of  any  particular  com- 
modity which  is  in  the  market,  and  dematid  as  the  total 
amount  which  the  community  desires  to  purchase.  If  there 
is  more  than  the  usual  amount  offered  for  sale,  there  will  ordi- 
narily be  a  competition  among  the  sellers  ;  and,  as  each  would 
sell  at  something  less  than  the  usual  profit,  or,  if  it  be  a  speed- 
ily perishable  article,  at  no  profit,  or  even  at  some  loss,  rather 
than  lose  the  whole,  there  will  be  a  diminution  of  prices, 
that  is,  of  value  expressed  in  money.  On  the  other  hand,  if 
there  be,  for  any  reason,  in  the  community  an  enlarged  desire 
to  purchase  the  commodity  referred  to,  while  the  amount 
offered  for  sale  remains  the  same,  there  will  be  a  competition 
among  the  buyers  ;  some,  at  least,  being  willing  to  give  more 
than  the  ordinary  price  rather  than  forego  its  possession. 
Hence  prices  will  rise. 

The  law  of  supply  and  demand  derived  from  the  foregoing 
observation  is  very  simple.  Other  things  being  equal,  i. 
The  greater  the  supply,  the  less  the  price ;  2.  The  smaller 
the  supply,  the  greater  the  price ;  3.  The  greater  the  de- 
mand, the  greater  the  price ;  4.  The  smaller  the  demand, 
the  less  the  price  ;  and,  generally,  the  price  will  vary  directly 
as  the  demand,  and  inversely  as  the  supply. 

*  Mill's  Principles  of  Political  Economy,  vol.  i.  p.  557. 


THE   LAW  OF  EXCHANGE.  73 

4.  But,  in  order  to  a  thorough  understanding  of  the  sub- 
ject, more  careful  examination  is  required.  In  the  superficial 
statement  previously  made,  supply  represents  a  quantity,  and 
demand  a  desire.  But  the  quantity  represented  by  supply 
is  not  always  the  quantity  in  existence,  but  the  quantity  in  the 
market.  Now,  not  only  does  the  quantity  in  the  market 
affect  the  price,  but  the  price  affects  the  quantity  in  the  mar- 
ket. If  a  farmer  bring  a  load  of  wheat  to  market,  expecting 
to  sell  it  at  a  dollar  a  bushel,  but  finds  that  the  price  is  only 
ninety  cents,  he  may  on  that  account  withdraw  it  from  the 
market,  thus  diminishing  the  supply.  In  other  words,  so 
long  as  the  price  is  one  dollar,  the  farmer's  load  is  a  part  of 
the  supply ;  but  at  ninety  cents  the  supply  is  smaller  by  the 
amount  of  that  load.  Here  diminution  of  price  has  dimin- 
ished supply. 

So,  by  the  statement  previously  made,  the  prominent  ele- 
ment in  demand  is  desire.  But,  obviously,  mere  desire  for  a 
commodity  does  not  constitute  commercial  demand  for  it. 
In  a  town  of  five  thousand  inhabitants,  there  may  be  a  thou- 
sand persons  who  desire  diamonds.  But  there  is  no  demand 
to  this  extent ;  since  probably  not  a  hundred,  and  perhaps  not 
a  score,  have  the  ability  to  purchase  diamonds.  Hence  the 
meaning  of  demand  is  modified  to  desire  with  ability  to  pur- 
chase.    This  is  sometimes  called  "  effectual  demand." 

5.  But  here  another  phenomenon  presents  itself.  Let  us 
suppose  a  commodity  of  such  cost  that  only  persons  who 
have  an  income  of  two  thousand  dollars  a  year  can  afford  to 
purchase  it.  By  some  improvement  in  the  facilities  of  pro- 
duction, the  supply  is  doubled.  According  to  the  general 
law,  the  price  will  fall.  Possibly  it  falls  so  much  as  to  come 
within  the  reach  of  those  whose  income  is  one  thousand  dol- 
lars. Here,  evidently,  the  demand  is  increased  by  the  dimi- 
nution of  the  price.     But  by  the  general  law  the  increase  of 


74  POLITICAL   ECONOMY. 

demand  increases  the  price.  In  this  case,  as  in  that  of  sup- 
ply, the  lawis  met  by  a  counter  law.  Another  interesting  fact 
emerges  here.  The  diminution  of  the  price  has  increased 
the  demand  to  the  extent  that  not  only  those  with  an  income 
of  two  thousand  dollars  can  purchase  it,  but  also  those  with 
an  income  of  one  thousand  dollars.  As  the  latter  class  is 
several  times  more  numerous  than  the  former,  it  follows  that 
the  demand  is  several  times  larger  than  when  the  higher  price 
ruled.  This  will  again  increase  the  price,  which  will  ascend 
till  it  reaches  a  point  where  only  those  having  an  income 
somewhere  between  one  and  two  thousand  dollars  can  afford 
to  purchase.  This,  then,  is  the  general  law  of  prices  :  they 
tend  to  seek  the  level  of  the  cost  of  production.  When 
demand  and  supply  from  any  cause  become  unequal,  the 
natural  competition  of  both  labor  and  capital  immediately 
operates  to  restore  the  equilibrium. 

6.  So  far  we  have  been  considering  cases  where  the  supply 
is  not  restricted,  and  the  production  interrupted,  by  extrane- 
ous causes.  There  are  cases,  however,  where  such  limita- 
tions do  exist  so  that  there  can  be  either  no  immediate 
increase,  or  really  no  increase  at  all.  As  an  instance  of  the 
former,  suppose  a  community  in  which  the  crop  of  grain 
has  been  cut  off  so  that  there  is  only  one-half  or  one-third 
the  usual  amount,  which  usual  amount  was  just  adequate 
to  the  wants  of  the  people.  If  the  community  is  so  separated 
from  the  rest  of  the  world  that  importation  is  out  of  the 
question,  it  is  plain,  there  can  be  no  increase  of  the  quantity 
till  the  next  year.  In  such  a  case,  there  would  be  a  great 
rise  of  prices,  with  no  corrective  principle  to  restore  the 
natural  level. 

There  is  another  case  where  the  supply  is  absolutely  lim- 
ited, not  for  a  season  only,  bi;t  forever.  There  are  certain 
commodities,  to  the  number  of  which  there  can  be  no  pos- 


THE  LAW  OF  EXCHANGE.  75 

sible  addition.  Such  are  works  of  art  by  famous  masters 
now  dead,  antique  coins,  rare  volumes  long  out  of  print  and 
impossible  of  imitation,  and  manuscripts  of  ancient  docu- 
ments. Of  such,  the  cost  of  production  furnishes  no  stand- 
ard of  value  whatever.  If  two  or  three  pictures  by  Raphael 
or  Murillo  or  Titian  were  offered  for  sale  in  one  of  our 
great  cities,  thousands  of  persons  might  desire  to  possess 
one  of  them  ;  but  only  a  very  few  could  do  so.  If  put  up  at 
auction,  the  prices  offered  by  the  mass  of  those  who  would 
like  to  secure  them  would  soon  be  surpassed  by  those  offered 
by  a  small  number.  This  number  would  be  quickly  reduced 
to  fift)',  then  to  thirty,  to  twenty,  to  ten,  and  finally  to  a 
number  equal  to  the  number  of  pictures  for  sale ;  that  is,  to 
a  number  where  the  supply  was  just  equal  to  the  demand  at 
so  high  a  price. 

7.  Supply  and  demand  operate  in  still  other  ways,  and 
are  affected  by  other  causes,  than  those  already  mentioned. 

1.  If  there  be  a  suddenly  enlarged  demand  for  a  com- 
modity not  readily  admitting  of  increased  production,  the 
price  will  be  likely  to  rise  more  rapidly,  and  to  a  higher 
point,  than  in  cases  of  continuous  production  and  readily 
multiplied  facilities  for  enlarging  the  supply.  There  are  arti- 
cles of  which  only  a  limited  quantity  is  kept  on  hand  and  for 
sale  in  a  community  of  moderate  numbers,  and  which  are 
produced  at  some  distance  from  the  place  of  consumption. 
Thus,  in  a  small  way,  we  may  have  seen  this  exemplified, 
when,  in  the  late  autumn  or  early  winter,  there  is  but  little 
wood  in  a  village  or  town,  and  the  roads  are  so  bad  that  for 
weeks  scarcely  any  can  be  hauled  from  the  country.  The 
price  will  increase  more,  and  more  rapidly,  than  when  the 
scarcity  is  one  the  anticipation  of  which  would  bring  con- 
siderable quantities  to  the  market. 

2.  It  also  makes  a  difference  whether   the   article   be  a 


^6  POLITICAL   ECONOMY. 

necessary  or  only  a  luxury.  If  it  be  the  former,  the  price 
will  rise  higher  and  more  rapidly  than  if  it  were  the  latter. 
A  man  will  double  and  treble  his  payment  for  bread,  rather 
than  go  hungry ;  but,  if  diamonds  are  scarce,  one  can  get  on 
tolerably  without  them. 

3.  So,  on  the  other  hand,  if  there  were  to  be  a  greatly  in- 
creased supply  of  a  perishable  article,  the  price  will  fall  more 
rapidly  than  in  case  of  a  more  durable  commodity.  In  the 
early  autumn,  there  may  be,  in  a  market-town,  two  or  three 
times  as  many  peaches  as  are  ordinarily  consumed  :  as  these 
will  quickly  decay,  prices  will  go  far  below  the  natural 
value,  since  it  will  be  better  for  the  seller  to  get  back  even 
a  part  of  their  cost,  than  to  have  them  perish  on  his  hands. 
But  if  instead  of  peaches  the  commodity  be  cloth  or  iron 
or  leather,  the  difference  of  price  occasioned  by  an  over- 
stocked market  is  comparatively  small.  There  are  other 
cases  of  variation ;  but  these  illustrations  are,  perhaps,  all  that 
are  necessary. 


CHAPTER  III. 

THE   PROMOTION   OF   COMMERCE. 

1.  Whatever  tends  to  promote  association  conduces  to 
human  prosperity.  Every  obstruction  to  this  is  a  damage. 
If  men  are  kept  apart  so  that  they  cannot  combine,  produc- 
tion will  be  scanty,  and  man,  in  the  struggle  with  nature,  will 
be  at  great  disadvantage.  Whatever  brings  men  into  such 
relations  that  all  can  minister  freely  to  each,  and  each  to  all, 
furnishes  increments  of  power.  We  have  seen  what  are  the 
conditions  of  high  productiveness  in  a  community,  and  that 
all  these  are  in  some  way  related  to  association.  The  same 
is  true  in  the  promotion  of  commerce. 

2.  Commerce  will  be  promoted  in  general  by  such  con- 
ditions as  will  render  exchanges  easy,  frequent,  and  rapid. 
It  is  an  advantage  to  the  producer,  to  be  able  to  dispose  of 
his  product  as  soon  as  possible  after  he  has  completed  it. 
Whatever  compels  him  to  retain  it  on  his  hands  for  an 
indefinite  period,  or  makes  the  opportunities  of  exchange 
remote  and  expensive,  is  detrimental  to  commerce  and  to 
all  the  interests  it  is  designed  to  subserve.  This  is  more 
obvious  in  the  case  of  some  commodities  than  in  that  of 
others.  Many  agricultural  products  must  be  sold  within  the 
year ;  others  within  a  briefer  period,  or  not  at  all.  Certain 
garments  and  articles  of  personal  decoration  must  also  be 
sold  within  a  moderate  time  after  their  manufacture,  or  they 
will  become  valueless  through  a  change  of  the  fashion. 

77 


y^  POLITICAL   ECONOMY. 

The  more  readily  a  man  can  sell  his  own  products,  the 
more  readily  can  he  purchase  those  of  others.  Herein  is 
implied  that  vigorous  societary  circulation  which  is  charac- 
teristic of  prosperous  communities.  Some  of  the  particular 
conditions  upon  which  this  depends  will  now  be  set  forth. 

3.  Commerce  is  promoted  by  the  close  proximity  of  pro- 
ducer and  consigner.  The  first  and  most  burdensome  tax 
which  the  producer  has  to  pay  is  that  of  transportation. 
This  is  more  especially  the  case  with  the  producer  of  raw 
material  and  of  heavier  and  coarser  commodities.  It  bears 
with  particular  weight  upon  the  agriculturist.  "  If  we  esti- 
mate wheat  at  one  dollar,  and  corn  at  fifty  cents,  a  bushel, 
the  value  of  the  former  will  disappear,  or  become  equal  to 
zero,  at  two  hundred  and  twenty  miles,  and  the  butter  at  a 
hundred  and  ten,  if  they  must  be  conveyed  by  teams  on  com- 
mon highways.  Beyond  those  distances  they  will  respec- 
tively become  worthless  for  the  purposes  of  sale,  and  the 
producer  can  have  no  pecuniary  inducement  to  raise  any 
larger  quantity  than  sufifices  for  his  own  consumption.  The 
bulkier  products  —  like  potatoes,  turnips,  cabbages,  etc.  —  be- 
come valueless  at  a  still  smaller  distance.  At  twenty-five 
cents  a  bushel,  potatoes  cease  to  afford  any  remuneration  to 
the  grower  fifty  miles  by  common  roads  from  markets,  even 
if  land  were  gratuitous,  and  the  labor  devoted  to  their  culti- 
vation could  be  procured  for  nothing.  "  ' 

All  so  far  said  has  reference  to  transportation  by  common 
roads.  E\'ery  means  by  which  this  expense  is  diminished 
is  a  means  of  facilitating  commerce.  In  the  earlier  periods 
of  society,  where  there  are  no  roads,  and  men  have  not  even 
learned  to  avail  themselves  of  beasts  of  burden,  it  is  easy 
to  see  that  there  can  be  but  little  association,  and  the 
exchanges  must  be  i<t\s.     When  these  are  brought  into  use, 

*  £.  Peshine  Smith,  Manual  of  Political  Economy,  p.  196. 


THE  PROMOTION  OF  COMMERCE.  79 

commerce  will  increase.  When  the  iron  railway  supersedes 
the  common  road,  and  when  resort  is  had  to  canals  and 
water-courses,  the  obstacles  are  further  diminished.  But, 
under  any  system  of  transporting  raw  commodities  great  dis- 
tances, their  value  is  much  less  than  if  they  were  needed  for 
consumption  in  the  neighborhood.  A  bushel  of  corn  raised 
in  Nebraska  will  sell  for  a  dollar  in  Massachusetts  ;  but  the 
producer  must  pay  seventy-five  cents  to  get  it  there.  He 
may  take  his  pay  in  cotton  or  woollen  cloth,  but  he  must  pay 
something  for  their  carriage ;  so  that  perhaps,  counting  the 
expense  both  ways,  he  scarcely  realizes  one-eighth  as  much 
for  his  product  as  if  there  were  a  Lowell  or  Manchester  near 
by,  mstead  of  thirteen  hundred  miles  distant.  Cotton  is 
raised  in  Alabama,  and  carried  to  England,  four  thousand 
miles  away.  Cloth  is  manufactured  from  this  cotton,  and 
carried  back  to  Alabama.  Now,  the  Alabama  planter  must 
sell  his  cotton  for  as  much  less  than  it  will  bring  in  Eng- 
land, as  is  required  to  pay  not  only  the  freight,  but  also 
msurance,  brokers'  commissions,  and  profits  of  merchants. 
He  must  pay  a  correspondingly  additional  price  for  his 
cloth.  Some  one  has  said,  that,  as  it  is  cheaper  to  transport 
cloth  than  cotton,  the  planters  would  make  a  large  saving  if 
they  would  build  factories  in  Alabama,  convert  the  cotton 
into  cloth,  transport  the  cloth  to  England,  and  then  bring  it 
back  to  Alabama  !  It  is  impossible  to  estimate  the  diminu- 
tion of  expense  when  transportation  is  reduced  to  its  lowest 
limits  by  bringing  the  several  classes  of  producers  into  the 
closest  possible  proximity. 

Nor  is  this  all.  There  is  a  very  large  amount  of  both 
actual  and  possible  product  which  cannot  be  exchanged  at 
all  when  the  producers  are  at  remote  distances  from  one  an- 
other. ^Ve  have  already  seen,  that  when  local  centres,  in  the 
form  of  manufacturing  towns,  are  maintained  in  the  midst  of 


8o  POLITICAL  ECONOMY. 

agricultural  regions,  there  is,  in  addition  to  the  great  trans- 
portable staples,  a  vast  variety  of  untransportable  produce 
which  finds  a  ready  market.  This  requires  comparativejy 
little  additional  labor  and  capital.  The  value  of  it  some- 
times amounts  to  nearly  as  much  in  the  aggregate  as  that  of 
the  main  staples.  There  is  thus  not  only  a  much  greater 
productiveness,  but  a  greater  variety  as  well  as  larger  facilities 
of  exchange. 

4.  Closely  connected  with  the  advantage  of  the  proximity 
of  producer  and  consumer  is  that  of  a  large  diversificatiofi 
of  industries.  Indeed,  in  an  important  sense,  the  former 
depends  upon  the  latter.  It  is  only  when  one  produces  much 
of  a  single  commodity,  that  one  has  the  means  to  purchase 
many  other  commodities.  As  association  or  commerce  de- 
pends on  differences  among  individuals  ;  the  more  numerous 
the  differences,  the  more  frequent  and  more  extensive  the 
exchanges.  "  In  every  community,  the  more  numerous  are 
the  producers  and  the  more  various  the  productions,  the  more 
prompt,  numerous,  and  extensive  are  the  vents  for  those  pro- 
ductions ;  and,  by  a  natural  consequence,  the  more  profitable 
are  they  to  the  producers,  for  prices  rise  with  the  demand. 
But  this  advantage  is  to  be  derived  from  real  production 
alone,  and  not  from  forced  circulation  of  products ;  for  a 
value  once  created  is  not  augmented  in  its  passage  from 
one  hand  to  another."  ' 

Just  in  proportion  to  the  diversity  of  character  and  capa- 
bility in  a  community,  will  that  community  approximate 
perfection ;  for  the  perfection  of  society  consists  in  the  pres- 
ence and  combination,  in  proper  proportions,  of  all  the  really 
different  natural  elements  of  humanity  embodied  in  the  va- 
rious individual  members,  so  that  each  will  meet  some  want 
which  another  cannot  supply.     In  a  greatly  heterogeneous 

*  Say's  Political  Economy,  American  edition,  p.  8i. 


THE  PROMOTION  OF  COMMERCE.  8 1 

society,  the  development  is  greater,  and  there  is  a  higher 
education,  and  more  skill,  invention,  and  enterprise,  than  in 
the  opposite.  Such  a  society  will  devise  new  industries 
peculiar  to  itself,  and  will  thus  furnish  occasions  for  exchange 
with  other  communities,  far  more  than  would  otherwise  be 
the  case. 

There  are  two  other  topics  which  are  intimately  connected 
with  the  commercial  prosperity  of  a  community;  but  they 
are  of  such  great  importance  and  of  so  complicated  a  char- 
acter, that  they  need  to  be  discussed  at  considerable  length. 
I  refer  to  the  questions  oi  free  trade  and  protection,  and 
the  subject  oi  finance. 


CHAPTER  IV. 

PROTECTION  AND  FREE  TRADE. 

1.  A  PROTECTIVE  tariff,  so  called,  is  a  system  of  duties 
levied  by  the  government  of  a  country  on  commodities 
produced  in  other  countries,  to  prevent  their  coming  into 
unequal  competition  with  similar  commodities  of  domestic 
production  in  such  a  way  as  to  cripple  or  destroy  the  industry 
implied  in  the  latter.  Thus,  suppose  that  iron  may  be  manu- 
factured in  England,  and  delivered  here  at  twenty  dollars 
a  ton ;  while,  at  the  ordinary  rate  of  profit  and  wages,  iron 
could  not  at  present  be  manufactured  here  for  less  than 
twenty-five  dollars  a  ton.  A  duty  of  five  dollars  a  ton  is 
levied  on  the  foreign  iron.  This  enables  our  manufacturers 
to  compete  with  those  of  England  in  our  own  market.  It 
is  claimed  that  in  this  way  the  home  industry  gets  a  chance 
to  live,  and  become  developed,  and  that  such  a  develop- 
ment is  an  advantage  to  the  country  greater  than  the  loss 
implied  in  the  increase  of  price.  We  are  not  to  consider 
here  these  duties  in  the  light  of  a  revenue  to  the  govern- 
ment, though  this  they  may  be  at  the  same  time.  But  it  is 
the  protective  feature  only  that  we  are  to  discuss ;  and,  for 
that  reason,  it  is  desirable  to  abstract  it  from  the  revenue 
feature. 

Free  trade,  as  a  theory,  opposes  all  those  duties  the  design 
of  which  is  to  afford  any  advantage  to  domestic  industry. 
82 


PROTECTION  AND  FREE    TRADE.  83 

It  implies  the  same  freedom  of  intercourse  between  pro- 
ducers in  different  nations  as  between  those  in  the  same 
community. 

2.  In  an  elementary  treatise  it  is  proper,  that,  on  contro- 
verted questions,  there  should  be  a  fair  statement  of  the  main 
arguments  on  both  sides  ;  though  it  is  not  necessary  that  the 
writer  should  conceal  his  own  convictions. 

The  following  are  the  principal  positive  arguments  in 
favor  of  a  restrictive  system  :  — 

I.  It  is  said  to  be  the  only  sure  defence  of  new  and  feeble 
industries  against  the  unequal  competition  of  those  long  estab- 
lished in  other  cotumunities.  Freedom  of  competition  is 
advocated  by  all  parties.  But  it  is  denied  that  this  exists  in 
the  cases  above  supposed.  A  community  which  has  long 
experience,  skilled  labor,  and  accumulated  capital,  possesses 
advantages  in  the  contest  with  a  nation  which  is  destitute  of 
them.  A  restrictive  system  is  the  only  method  by  which 
industries  which  have  been  for  any  reason  wanting,  especially 
in  a  new  country,  can  be  built  up  in  competition  with  those 
of  the  same  kind  long  established  in  another  nation.  Time, 
experience,  and  accumulated  capitals  give  a  superiority  which 
must  prove  fatal  to  the  industries  which  are  wanting  in  these 
respects,  unless  resort  be  had  to  artificial  measures  to  equal- 
ize the  condition.  This  is  admitted  by  J.  S.  Mill,  the  ablest 
as  well  as  the  most  candid  of  recent  free-trade  writers. 
He  says,  "  The  superiority  of  one  country  over  another,  in  a 
branch  of  production,  often  arises  only  from  having  begun 
it  sooner.  It  cannot  be  expected  that  individuals  should  at 
their  own  risk,  or  rather  to  their  certain  loss,  introduce  a  new 
manufacture,  or  bear  the  burden  of  carrying  it  on,  until  the 
producers  have  been  educated  up  to  the  level  of  those  with 
whom  the  processes  have  become  traditional.  A  protective 
duty  continued  for  a  reasonable  time  will  sometimes  be  the 


84  POLITICAL   ECONOMY. 

least  inconvenient  mode  in  which  a  country  can  tax  itself  for 
the  support  of  such  an  experiment."  ' 

But,  besides  these  natural  advantages  of  an  older  and  more 
experienced  community,  there  is  another  of  a  purely  artificial 
character,  which  is  liable  to  be  taken.  Sometimes  the  man- 
ufacturers of  one  country  adopt  positive  measures  to  break 
down  the  competing  industries  in  feebler  communities.  To 
show  that  this  is  no  chimera,  the  report  of  a  British  parlia- 
mentary committee,  made  about  the  year  1858,  is  sometimes 
cited.  "  The  laboring  classes  generally,  in  the  manufacturing 
districts  of  this  country,  are  very  little  aware  of  the  extent  to 
which  they  are  often  indebted,  for  their  being  employed  at 
all,  to  the  immense  losses  which  their  employers  voluntarily 
incur  in  bad  times  in  order  to  destroy  foreign  competition, 
and  to  gain  and  keep  possession  of  foreign  markets.  Au- 
thentic instances  are  well  knowoi  of  employers  having  in  such 
times  carried  on  their  works  at  a  loss  amounting  in  the  aggre- 
gate to  three  or  four  hundred  thousand  pounds  in  the  course 
of  three  or  four  years.  If  the  efforts  of  those  who  encour- 
age the  combination  were  to  be  successful  for  any  length  of 
time,  the  great  accumulations  of  capital  could  no  longer  be 
made,  which  enable  a  few  of  the  most  wealthy  capitahsts  to 
overwhelm  all  foreign  competition  in  times  of  great  depres- 
sion, and  thus  clear  the  way  for  the  whole  trade  to  step  in 
when  prices  revive,  and  to  carry  on  a  great  business  before 
foreign  capital  can  again  accumulate  to  such  an  extent  as  to 
be  able  to  establish  a  competition  in  prices  with  any  chance 
of  success.  The  large  capitals  of  this  country  are  the  great 
instruments  of  warfare  (if  the  expression  may  be  allowed) 
against  the  competing  capital  of  foreign  countries." 

Said  Lord  Brougham  in  181 5  in  Parhament,  "England 
can  afford  to  incur  some  loss  on  the  export  of  English  goods, 

'  Principles  of  Political  Economy  (American  edition),  vol.  ii.  pp.  538,  539. 


PROTECTION  AND   FREE    TRADE.  85 

for  the  purpose  of  destroying  foreign  manufactures  in  their 
cradle."  Since  such  purposes  are  avowed,  and  since  large 
capitals  are  used  as  "  instruments  of  warfare  "  to  break  down 
foreign  competing  industries,  there  ought  to  be  some  de- 
fence against  them.  Such  a  defence,  it  is  claimed,  is  found 
in  a  system  of  restrictive  duties. 

2.  It  is  urged  that  such  a  system  gives  a  steady  and  uni- 
form market  at  an  expense  far  less  than  the  benefit  accruing. 
Domestic  commerce  is  liable  to  disturbances  and  revulsions 
through  the  free  admission  of  commodities  from  the  prolific 
industries  of  older  countries.  If  the  manufacturer  be  re- 
lieved from  this  unequal  competition,  he  can  keep  his  capi- 
tal constantly  employed,  and,  by  reason  of  furnishing  steady 
work,  can  secure  better  labor  at  less  cost.  Otherwise  he 
may  be  compelled  to  stop  work  half  of  the  time,  and  let  his 
machinery  lie  idle,  dismissing  his  laborers,  to  their  great  loss 
and  distress.  This  is  one  reason  why,  as  will  hereafter  be 
seen,  it  is  claimed  that  manufactured  products  are  often  sold 
at  lower  prices  under  a  protective  tariff  than  when  no  duty 
is  levied  on  the  imported  article.  It  is  thought  to  be  evi- 
dent from  these  considerations,  that  certain  desirable  indus- 
tries will  spring  up  at  once,  and  without  appreciable  extra 
expense,  if  they  have  a  fair  chatice,  which  may  nevertheless 
be  prevented  by  unequal  competition.  They  simply  need 
to  be  shielded  from  the  malign  influence  of  parties  inter- 
ested to  break  them  down,  as  well  as  from  that  of  the  natu- 
ral inequality  which  exists  between  an  infant  industry  and 
one  that  is  fully  developed. 

3.  It  is  urged  in  favor  of  protection,  that  it  greatly  aids 
the  tendency  to  that  societary  completeness  which  is  the  final 
cause  of  association.  The  less  obstructed  the  latter  is,  the 
more  nearly  perfect  will  the  former  become,  and  the  stronger 
and  more  competent  will  men  be.     This  freedom  of  asso- 


86  POLITICAL   ECONOMY. 

ciation,  as  we  have  seen,  depends  upon  the  individiml  dif- 
ferences both  of  character  and  calhng  which  prevail  in  a 
community.  A  variety  of  industries  would  be  likely  to  grow 
up  in  any  society  left  free  to  the  development  of  its  own 
resources.  But  a  new  society,  whose  nascent  industries  are 
in  competition  with  those  of  an  older  and  richer  community, 
is  not  left  free  to  develop  its  resources  :  the  so-called  free- 
dom becomes  a  positive  repression. 

4,  The  restrictive  system  is  regarded  as  an  advantage  to 
the  general  ititei-ests  of  the  community,  as  well  as  to  those 
particularly  protected.  If  this  were  not  the  case,  it  would 
be  altogether  undeserving  of  support.  We  may  take  as  a 
representative  of  these  agriculture,  since  this  is  the  funda- 
mental industry,  and,  if  the  statement  is  true  concerning  this, 
it  undoubtedly  is  of  all  others.  In  considering  the  protec- 
tive system  in  relation  to  agriculture,  several  things  are  to  be 
taken  into  account. 

(i)  First,  there  is  the  question  of  transportation.  That 
every  reasonable  means  should  be  taken  to  diminish  the 
expense  of  this,  no  one  doubts.  It  cannot  be  effected  by 
doing  or  continuing  to  do  the  least  immediately  costly  thing, 
but,  frequently,  only  by  going  to  much  additional  expense. 
This  expense,  however,  is  once  for  all ;  and  so,  on  the  whole, 
it  is  less  expensive.  To  build  a  wagon-road  where  there  was 
none  before,  involves  an  outlay  sometimes  of  hundreds  of 
thousands  of  dollars.  It  may  add  only  a  small  amount  the 
first  year  to  the  profit  of  each  producer  living  near  it ;  but 
in  a  brief  period  thereafter,  the  advantage  will  amount  to 
much  more  than  the  whole  cost  of  construction.  The  same 
principle  applies  in  the  building  of  railways  and  the  making 
of  canals. 

If  it  is  good  economy  to  go  to  great  expense  to  increase 
the  power  of  association  by  means  of  roads  and  other  transit 


PROTECTION  AND  FREE    TRADE.  8/ 

arrangements,  it  certainly  cannot  be  poor  economy  to  go  to 
some  expense  for  the  purpose,  so  far  as  the  conditions  allow, 
of  doing  away  with  transportation  altogether.  Restrictive 
duties,  even  when  the  conditions  are  the  least  favorable,  are 
often  the  least  expensive  method  by  which  the  producer  and 
the  consumer  can  be  brought  into  close  proximity. 

(2)  Again,  unless  manufacturing  centres  exist  in  the 
midst  of  agricultural  areas,  products  of  the  soil  must  be 
conveyed  to  a  great  distance.  But  this  implies  virtually  an 
exportation  of  the  soil,  and  this  is  a  diminution  of  the  capital 
of  the  farmer.  There  are  many  illustrations  of  this.  Fifty 
years  ago  Western  New  York  was  one  of  the  richest  wheat- 
producing  regions  in  the  world  :  twenty-five  years  later  it 
had  so  deteriorated  that  the  crops  were  scarcely  half  their 
former  amount.  The  wheat- fields  of  Ohio  formerly  yielded 
as  high  as  thirty  bushels  to  the  acre  :  they  afterwards  fell 
off  to  fifteen  and  thirteen.  The  same  process  is  going  on  in 
Illinois,  Wisconsin,  Iowa,  and  other  purely  agricultural  re- 
gions. The  soil  is  being  rapidly  exhausted,  except  where  it 
is  kept  up  by  artificial  fertilization.  It  has  been  said,  that 
this  might  be  done  universally  as  well  as  in  a  few  cases. 
But  the  fact  that  almost  universally  it  is  not  done,  would 
seem  to  indicate  some  natural  reason  for  the  failure. 

On  the  other  hand,  agricultural  estates  within  moderate 
distances  from  manufacturing  centres  tend  to  a  constant 
increase  of  efficiency.  "  In  England,  in  the  days  of  the 
Plantagenets,  when  the  population  but  little  exceeded  two 
millions,  an  acre  of  land  yielded  but  six  bushels  of  wheat ; 
and,  small  as  were  the  number  to  be  fed,  famines  were  fre- 
quent and  severe.  To-day  we  see  eighteen  millions  oc- 
cupying the  same  surface,  and  obtaining  greatly  increased 
supplies  of  very  superior  food."  The  yield  of  wheat  now  in 
England  is  thirty,  forty,  and  even  fifty  bushels  to  the  acre. 


88  POLITICAL   ECONOMY, 

In  France  the  product  of  grain  has  nearly  doubled  within 
a  single  century,  while  the  population  has  increased  only 
about  fifty  per  cent.  Here,  as  also  in  England,  are  new 
varieties  of  produce,  which  by  themselves  are  equivalent  to 
two-thirds  of  all  the  food  formerly  produced.  There  are 
still  more  striking  illustrations  found  in  Holland  and  Bel- 
gium, and  in  many  other  countries  there  are  remarkable 
instances  of  a  similar  kind.  This  condition  of  things  is  pos- 
sible only  with  a  diversified  industry  out  of  which  will  come 
populous  centres.  This,  in  a  new  country,  is  conditioned  on 
considerable  expenditure,  and  such  public  measures  as  will 
prevent  destructive  foreign  competition. 

(3)  A  third  advantage  to  agriculture  is  alleged  to  be 
found  in  the  utilization  of  materials  which  would  otherwise 
be  wasted.  In  exclusively  agricultural  sections,  an  incalcu- 
lable amount  of  produce,  which  might  be  furnished  at 
scarcely  any  additional  expense,  is  lost  by  reason  of  the 
difficulty  or  impossibility  of  transportation.  It  is  only  in 
the  vicinity  of  manufacturing  centres,  that  certain  articles 
have  any  value  at  all.  It  was  said  some  twenty-five  years 
ago,  that  the  crop  of  straw  in  France  was  utilized  to  the 
amount  of  a  hundred  and  fifty  million  dollars  a  year.  This  is 
more  than  the  value  of  our  whole  cotton-crop  at  that  time, 
—  a  crop  which  employed  the  principal  part  of  the  capital 
and  labor  of  ten  States,  and  was  the  largest  export  by  far  of 
all  our  great  staples.  Yet,  in  large  agricultural  areas  of  our 
country,  this  material  is  every  year  burned  in  the  fields  where 
it  grows. 

5.  A  fifth  argument  advanced  in  favor  of  protection  is,  that 
//  tends  to  prevent  the  degradation  of  labor  in  the  country 
protected.  It  is  generally  urged,  that  one  chief  reason  why 
in  our  own  country  manufactures  are  at  a  disadvantage  in 
relation  to  those  of  European  nations,  is  because  the  com- 


PROTECTION  AND  FREE    TRADE.  89 

pensation  there  is  smaller  than  here.  Even  in  England, 
where  it  is  better  than  in  most  parts  of  the  Continent,  all  the 
ruder  kinds  of  labor  are  at  a  price  which  affords  only  such 
and  so  much  sustenance  as  will  keep  the  subject  in  a  fair 
working  condition.  The  great  mass  of  this  class  is  exceed- 
ingly poor,  there  are  among  them  scarcely  any  savings,  there 
is  little  inducement  to  them  to  endeavor  to  improve  their 
condition,  and  there  is  very  little  hope  to  them  of  amelio- 
ration. Now,  it  is  thought  to  be  inevitable,  that  free  recip- 
rocal commerce  with  a  country  whose  system  produces  such 
consequences  can  but  result  in  reducing  our  own  laboring 
population  to  nearly  the  same  level.  Two  lakes  lying  near 
each  other,  but  between  which  there  is  a  channel  of  un- 
restricted communication,  will  stand  at  the  same  level. 


CHAPTER  V. 

ARGUMENTS  IN  FAVOR  OF  FREE  TRADE. 

1.  The  following  are  the  main  arguments  in  favor  of  free 
trade  :  — 

I.  It  is  said  to  be  the  method  of  nature.  There  is  a 
great  variety  in  the  relative  advantages  possessed  by  differ- 
ent countries  for  the  production  of  different  commodities. 
"  For  instance,  the  mixture  of  coal  and  iron-stone  in  alternate 
seams  gives  England  a  striking  advantage  in  the  manufac- 
ture of  hardware.  On  the  other  hand,  a  country  like  France 
has  peculiar  facilities  for  the  growth  of  wheat :  her  land  is 
fertile,  and  her  labor  is  cheap.  It  may  therefore  be  assumed, 
that  in  England  iron  is  comparatively  less  costly  to  produce 
than  wheat,  and  that  in  France  the  production  of  wheat  is 
comparatively  less  costly  than  that  of  iron.  In  order  to  ex- 
plain the  advantage  which  each  of  these  derives  from  trad- 
ing with  the  other,  let  it  be  supposed  that  in  France  the 
production  of  a  ton  of  pig-iron  requires  as  much  labor  and 
capital  as  the  production  of  twenty  sacks  of  wheat ;  but  that 
in  England  the  same  quantity  of  iron  requires  as  much  labor 
and  capital  as  would  produce  ten  sacks  of  wheat ;  then  iron 
estimated  in  wheat  is  twice  as  valuable  in  France  as  in  Eng- 
land. England,  therefore,  might  say  to  France,  '  It  will  be 
greatly  to  our  mutual  advantage  if  you  will  let  me  supply 
you  with  iron,  and  receive  from  you  wheat  in  exchange  for 
90 


ARGUMENTS  IN  FAVOR    OF  FREE    TRADE.       9I 

it.  For,  suppose  you  give  me  fifteen  sacks  of  wheat  for  each 
ton  of  iron,  then  we  shall  each  gain  five  sacks  of  wheat  on 
every  transaction.  If  you  manufacture  the  ton  of  iron  your- 
self, it  would  cost  you  as  much  as  twenty  sacks  of  wheat ; 
whereas  you  have  only  to  give  me  fifteen  sacks.  On  the 
other  hand,  I  should  only  be  able  to  get  ten  sacks  of  wheat 
for  a  ton  of  iron,  if  I  sold  the  iron  in  my  own  country.  We, 
therefore,  each  of  us  obtain  a  profit  upon  the  transaction 
\Vhich  is  represented  in  value  by  five  sacks  of  wheat.  This 
is  a  great  gain  and  saving  of  wealth,  for  the  gain  is  made  at 
no  one's  expense.'  "  ' 

2.  Free  trade  is  said  to  conserve  and  increase  the  productive 
power  of  labor,  by  causing  it  to  be  applied  to  those  particu- 
lar branches  of  industry  for  which  each  community  has  the 
greatest  natural  advantage.  It  is  admitted  by  every  one,  that 
it  would  be  a  great  waste  to  attempt  the  introduction  of  cer- 
tain industries  into  places  which  furnish  no  natural  facilities  for 
them,  and  where  no  facilities  can  be  created.  To  essay  the 
cultivation  of  oranges  in  Minnesota,  or  cotton  in  Iowa,  instead 
of  raising  wheat  in  both  and  exchanging  it  for  the  oranges 
and  cotton,  would  be  obviously  preposterous.  If  it  would 
be  altogether  unprofitable  to  undertake  the  cultivation  of  a 
new  product  where  the  facilities  are  wholly  wanting,  would  it 
not  be  to  some  extent  unprofitable  where  they  are  partly 
adverse  ?  Hence  all  industries  whose  introduction  depends 
upon  artificial  measures  and  considerable  expense  are  re- 
garded as  so  far  forth  uneconomical.  If  successful  in  their 
establishment,|it  is  said,  they  can  but  divert  labor  and  capital 
from  those  employments  for  which  better  conditions  exist, 
and  thus  diminish  the  productive  power  of  the  community. 

3.  "  The  right  of  property  implies  freedom  for  every  one  to 
do  what  he  will  with  his  own,  provided  he  does  not  infringe 

'  Henry  Fawcett:  Manual  of  Political  Economy,  pp.  372,  373. 


92  POLITICAL   ECONOMY. 

on  the  rights  of  others T  Any  restriction  of  this  freedom  is 
prima  facie  a  violation  of  a  natural  and  inherent  right. 
Every  man  is  entitled  to  use  the  products  of  his  ovvn  labor 
as  may  seem  most  for  his  advantage,  to  exchange  them  with 
citizens  of  his  own  country  or  with  foreigners,  as  he  may  get 
for  them  the  largest  compensation.  Any  interference  with 
this  right  bears  the  semblance  of  robbery.' 

4.  '■'■All  obstruction  to  the  exchange  of  conwiodities  be- 
tween any  two  countries  desiring  each  other'' s  products  ?nust 
injuriously  affect  the  interests  of  both."  This  is  clearly  seen 
in  the  case  of  natural  obstacles.  Mr.  Amasa  Walker  makes 
use  of  the  following  illustration  :  "  Two  communities  dwelling 
near  each  other  are  separated  by  a  lofty  chain  of  mountains, 
which  renders  transportation  between  them  so  difficult  as  to 
nearly  preclude  all  intercourse.  On  one  side  of  the  moun- 
tain the  soil  is  so  admirably  adapted  to  cereals  that  wheat 
(and  other  grains  in  proportion)  can  be  produced  at  the  rate 
of  one  bushel  for  a  day's  labor  ;  while  fuel  is  so  difficult  to  be 
obtained,  that  six  days'  labor  are  required  to  produce  one 
ton  of  coal. 

"  On  the  opposite  side  of  the  mountain-range,  so  little  is 
the  soil  adapted  to  the  culture  of  grain  that  three  days'  labor 
are  required  to  produce  a  single  bushel  of  wheat  •  while  the 
facilities  for  mining  coal  are  so  great  that  one  day's  labor 
will  purchase  a  ton.  Under  such  circumstances,  it  would 
evidently  be  quite  advantageous  to  both  communities  to  ex- 
change products,  if  there  were  no  obstacles  to  prevent  their 
doing  so.  Owing,  however,  to  the  resistance  which  the  sup- 
posed mountains  interpose,  the  transportation  of  a  bushel 
of  wheat  is  equivalent  to  two  days'  labor ;  so  that  the  wheat 
would  cost  three  days'  labor  when  brought  to  the  coal  country, 
and  for  that  amount  of  labor  the  inhabitants  could  procure  it 

*  Chapin's  Wayland's  Political  Economy,  p.  356. 


ARGUMENTS  IN  FA  VOR   OF  FREE    TRADE.       93 

themselves.  So  of  the  coal :  to  transport  a  ton  which  cost 
but  one  day's  labor  at  the  mines,  would  require  the  labor  of  five 
days ;  and  therefore  the  people  in  the  grain  country,  who  can 
produce  it  by  six  days'  work,  would  gain  nothing  by  getting 
it  from  abroad.  For  these  reasons,  there  would  be  no  trade 
or  exchange  of  products,  so  far  as  those  articles  were  con- 
cerned, except  in  case  of  some  accident,  —  as  the  failure  of  a 
crop,  or  an  unexpected  obstruction  to  the  process  of  mining, 
by  which  the  cost  of  tlie  supposed  commodity  should  be 
enhanced.  Virtually  there  would  be  no  profitable  trade 
between  the  two  communities,  although  in  one  coal  was  six 
times  as  dear,  and  in  the  other  wheat  was  three  times  as 
dear,  as  in  the  neighboring  country. 

"  If,  however,  we  now  suppose  a  railway  to  be  made 
which  reduces  the  iransportafion  of  a  bushel  of  wheat  to 
one  day's  labor,  and  the  freight  of  a  ton  of  coal  to  three 
days',  we  shall  have  conditions  under  which  an  advantageous 
trade  will  be  sure  to  spring  up  :  since  the  wheat-grower  of 
the  grain  country  can  now  get  a  ton  of  coal  for  the  labor  of 
four  days,  thus  saving  two  days  on  each  ton,  equal  to  thirty- 
three  and  one-third  per  cent ;  and  the  coal-miner  can  get  a 
bushel  of  wheat  for  two  days'  labor  instead  of  three,  thus 
saving,  as  far  as  his  consumption  of  wheat  is  concerned,  one- 
third,  or  thirty-three  and  one-third  per  cent,  of  his  labor."  ' 

That  in  such  a  case  the  removal  of  the  obstruction,  though 
at  a  very  great  cost,  would  result  in  far  greater  profit  to  both 
communities,  has  already  been  clearly  showm  in  the  chapter 
on  the  "  Promotion  of  Commerce."  It  is  claimed  to  follow 
from  this,  that,  if  the  removal  of  obstructions  to  the  freedom 
of  commercial  intercourse  is  beneficial,  the  creation  of  ob- 
structions or  restrictions,  in  whatever  form,  must  be  delete^ 
rious  and  damaging. 

^  Science  of  Wealth,  pp.  94-96. 


94  POLITICAL   ECONOMY. 

5.  "  Free  commercial  irifercourse  befiveen  the  nations  of  the 
earth  tends  evidently  to  establish  their  mutual  relations  tipon 
a  basis  of  peace  and  good-will.  By  the  mutual  exchange  of 
values,  different  peoples  become  acquainted  with  each  other ; 
and  the  feeling  of  interdependence  creates  a  common  inter- 
est, out  of  which  grow  the  bonds  of  abiding  friendship. 
Within  the  last  two  hundred  years,  international  law  has  come 
to  the  dignity  of  a  distinct  science.  Its  development  and 
growth  have  been  coincident  with  the  expansion  of  com- 
merce under  the  improved  facilities  secured  by  recent  inven- 
tions. The  spontaneous  and  necessary  intercourse  of  nations 
originates  international  law,  and  leads  to^the  establishment 
of  rules  for  governing  that  intercourse.  The  more  the  prin- 
ciples and  rules  of  this  department  of  law  are  studied,  the 
more  clearly  does  it  appear,  that,  through  free  commercial  re- 
lations, the  separate  interests  of  all  nations  are  bound  together 
in  one,  so  that  each  is  concerned  in  the  welfare  of  every 
other,  and  each  is  induced  to  place  itself  in  an  attitude  of 
friendship  rather  than  of  enmity  towards  others.  Free  trade, 
then,  appears  thus  the  promoter  and  pledge  of  peace  in  the 
world.  The  broad  competition  which  it  incites  tends  to 
swell  the  sum  of  human  comforts  and  joys,  and  to  impel 
every  branch  of  the  race  to  improve  to  the  utmost  the 
conditions  of  human  living."  ' 

2.  Some  of  the  strongest  argimients  in  favor  of  free  trade 
will,  from  the  very  nature  of  the  case,  be  found  in  the  form 
of  objections  to  protection.  Some  of  these  I  will  briefly  set 
forth. 

I.  Protective  duties  violate  the  right  of  every  man  to  do 
what  he  will  with  his  own.  He  has  the  natural  right  to  buy 
v/here  he  can  buy  at  the  best  advantage  ;  and  if  the  Govern- 
ment, by  any  kind  of  restriction,  prevents  his  doing  this,  it 

'  Chapin's  Wayland,  p.  357. 


ARGUMENTS  IN  FA  VOR   OF  FREE    TRADE.       95 

goes  beyond  its  authorized  limits,  and  does  him  a  positive 
injury. 

2.  Restrictive  duties  are  of  the  nature  of  a  tax  upon  all 
the  other  industries,  for  the  support  of  those  protected.  This 
may  be  illustrated  by  the  instance  of  the  duty  on  iron.  As 
was  seen  in  the  previous  statement  of  the  case,  a  duty  of  five 
dollars  a  ton  on  the  foreign  product  would  enable  the  Amer- 
ican producer  to  compete  with  the  foreign  manufacturers. 
The  objection  claims  that  «!//iron  —  not  only  that  imported, 
but  that  manufactured  at  home  —  is  five  dollars  a  ton  higher 
in  price  by  reason  of  this  duty.  That  is,  supposing  that 
one  hundred  thousand  tons  are  imported  :  the  duties  paid 
to  the  Government  amount  to  five  hundred  thousand  dol- 
lars. But  suppose  there  are  also  three  hundred  thousand 
tons  made  here  :  this  being  also  five  dollars  a  ton  higher 
than  without  restriction,  the  aggregate  additional  amount 
paid  will  be  fifteen  hundred  thousand  dollars,  none  of  which 
goes  to  the  Government  as  revenue,  but  all  to  the  manufac- 
turers as  bonus ;  and  all  of  it  must  be  contributed  by  the 
users  of  iron. 

3.  It  is  objected  further  to  the  restrictive  system,  that  it 
causes  a  diminution  of  exports  from  the  country  adopting  it. 
The  argument  is,  in  brief,  that,  by  restricting  the  imports,  the 
country  loses  the  opportunity  of  selling  to  foreign  producers, 
since  they  must  pay  for  commodities  purchased  of  the  for- 
mer with  goods  of  their  own  ;  and,  if  their  goods  are  not 
taken,  they  cannot  purchase  others. 

4.  It  is  also  objected,  that,  while  the  system  is  advocated 
as  a  protection  to  infant  industries,  these  never  come  to  ma- 
turity. It  is  said  that  some  industries  that  have  been  thus 
fostered  for  thirty,  forty,  or  fifty  years,  are  still  as  clamorous 
as  ever  for  protection,  and  that  they  are  no  nearer  going  alone 
now  than  at  the  beginning. 


96  POLITICAL   ECOXOMY. 

5.  The  question  is  asked,  "If  restriction  is  good  as  be- 
tween different  nations,  why  is  it  not  good  between  different 
communities  of  the  same  nation?"  The  United  States  is 
cited  as  a  magniticent  example  of  free  trade  over  a  large 
part  of  a  continent,  and  of  the  prosperity  and  development 
which  is  consequent  upon  such  a  system. 

6.  The  last  objection  to  be  mentioned  is.  that  it  gives 
vionopoly  privileges.  By  this  evidently  is  meant  that  it  gives 
advantages  to  a  few,  which  are  denied  to  the  many.  The  pro- 
tected industries  are  supposed  to  be  favored,  as  has  before 
been  seen,  at  the  expense  of  those  not  protected. 

3.  It  has  been  the  design  to  present  the  argiuiients  on 
both  sides,  as  clearly  and  forcibly  as  possible  with  the  limits 
at  our  disposal.  Some  of  the  argimients  on  botli  sides  are 
specious  rather  than  conclusi\"e  ;  though,  of  course,  different 
writers  see  in  them  severally  different  degrees  of  force.  It  is 
not  improbable  that  much  more  stress  has  been  laid  upon 
the  protectionist  argument  of  the  prevention  of  the  degra- 
dation of  labor,  than  belongs  to  it.  While  labor  is  better 
paid  generally  in  the  United  States  than  in  almost  any  other 
countr)',  it  is  not  therefore  necessarily  any  more  costly  to  the 
employer ;  since  the  costliness  of  labor  is  estimated  not  so 
much  by  the  amount  paid  for  it  as  by  its  greater  or  less  effi- 
ciencv.  We  have  alreadv  seen,  that,  while  in  Enirland  wasres 
are  higher  than  on  the  Continent,  the  same  effect  of  labor 
costs  less  in  the  former  than  in  the  latter.  So  if  we  compare 
the  European  Continent  with  Southern  Asia.  Doubtless  the 
same  comparison  will  furnish  analogous  results  as  between 
this  countr}-  and  Great  Britain.  Still,  if  it  be  true  that  the 
unequal  competition  which  would  result  under  free  trade 
prevents  the  development  of  industries  for  which  a  comnui- 
nity  has  good  facilities,  the  growth  of  capital  would  thus  be 
hindered,  and  labor  would  be  at  a  growing  disadvantage. 


ARGUMENTS  IN  FAVOR   OF  FREE    TRADE.       97 

4.  On  the  other  hand,  there  is  some  force  in  the  objection 
to  protection,  that  the  success  of  free  trade,  as  appUed  to 
the  different  parts  of  a  great  country  Hke  the  United  States, 
would  seem  to  indicate  the  propriety  of  applying  it  to  the 
different  communities  of  the  world.  There  is,  however,  this 
difference,  —  that  this  country  is,  in  an  important  sense,  one 
community,  having  a  common  financial  system,  a  common 
system  of  domestic  commerce,  and  many  other  interests  in 
common.  For  this  reason  it  might  seem  that  the  policy 
demanded  here  is  widely  different  from  that  applicable  to 
nations  in  their  mutual  relations. 

5.  These  are  two  or  three  of  the  arguments  against  and 
objections  to  protection,  that  seem  fallacious.  The  reason 
given  in  favor  of  free  trade,  that  it  is  the  method  of  nature, 
is  one  of  these.  The  theory  is  certainly  very  simple  and 
natural.  But  it  is  said,  simplicity  and  naturalness,  if  these 
terms  imply  the  exclusion  of  art,  do  not  by  any  means  indi- 
cate superiority.  If  they  do,  we  must  give  the  preference  to 
barbarism  over  civilization.  All  improvement  and  develop- 
ment involve  the  application  of  art  and  artificial  methods. 
It  is  no  argument  against  a  system,  that  it  is  partly  artificial 
instead  of  exclusively  natural ;  provided  only  that  art  shall 
work  with  nature,  and  not  against  it.  In  actual  life,  no  one 
thinks  of  leaving  nature  to  create  industries  or  remove  ob- 
structions. We  have  a  good  illustration  of  this  in  the  fifth 
argument  for  free  trade.  Mr.  Walker  there  supposes  the 
case  of  two  communities  of  diverse  productive  capabilities, 
but  separated  by  a  range  of  mountains  which  rendered  com- 
merce impracticable.  He  has  no  hesitation  in  approving 
the  building  of  a  railroad  to  remedy  this  difficulty.  He  does 
not  for  a  moment  think  of  waiting  for  nature  to  do  it,  but 
would  resort  to  art,  and  incur  great  expense,  in  order  to  bring 
the  two  kinds  of  producers  into  close  proximity. 


98  POLITICAL   ECONOMY. 

6.  One  of  the  most  popular  and  effective  objections  to 
protection  is,  that  it  is  of  the  nature  of  a  tax  on  other  indus- 
tries. Yet  it  seems  to  me  to  be  specious  and  fallacious. 
The  assumption  is,  that  the  consumer  pays  for  the  protected 
article  a  price  equivalent  to  that  which  it  would  be  if  there 
were  no  duty,  plus  the  duty.  As  a  matter  of  fact,  there  are 
very  few  instances  in  which  this  is  really  the  case.  It  is  true, 
that,  in  many  instances,  the  price  of  a  protected  article  will 
rise,  and  for  a  time  continue  higher,  because  of  the  duty  im- 
posed. The  idea  of  protection  implies  this  :  it  is  a  sacrifice 
made  in  the  present,  for  the  sake  of  future  advantage.  Yet 
there  are  instances  in  great  numbers  where  the  price,  instead 
of  increasing,  diminishes  on  the  imposition  of  a  protective 
duty.  Nor  is  this  any  thing  abnormal,  but  perfectly  in  ac- 
cordance with  economical  laws,  as  we  shall  see  in  a  few 
illustrative  examples. 

''Years  ago,"  says  Mr.  Greeley,  "under  a  low  duty,  we 
imported  most  of  the  starch  used  in  this  country,  making  a 
little  capriciously  when  the  market,  from  whatever  cause,  was 
bare ;  but  soon  a  fresh  importation  would  flood  our  ports, 
shutting  up  our  starch-factories,  and  driving  our  workmen  to 
find  employment  at  something  else.  Of  course  they  acquired 
no  proficiency  in  the  art,  and  our  starch  was  undoubtedly 
inferior  in  quality  to  its  imported  rival.  But  the  tariff  of 
1842  imposed  a  duty  of  two  cents  a  pound  on  imported 
starch  ;  and  at  once  a  leading  house  in  this  city  [New  York] 
resumed  its  long-suspended  manufacture  of  starch,  called  in 
its  scattered  workmen,  made  a  good  article,  and  put  it  on 
the  market  half  a  cent  per  pound  below  the  price  previously 
ruling.  This  was  done  on  purely  business  principles,  because 
starch  could  be  afforded  for  less  in  a  large  and  steady 
market  than  in  one  contracted  and  capricious." 

The  same  effect  was  seen  in  the  case  of  cotton  fabrics. 


ARGUMENTS  IN  FA  VOR   OF  FREE    TRADE.      99 

The  increased  duties  amounted  to  nearly  one  hundred  per 
cent  on  importers'  prices  ;  and,  according  to  the  theory  of  the 
objection  under  consideration,  it  should  have  nearly  doubled 
the  price.  But  instead  of  this,  the  prices  in  the  Lowell  manu- 
facturers' lists  were  lower  by  from  one-fourth  of  a  cent  to  a 
cent  and  a  half  per  yard.  It  was  for  the  same  reason  as  that 
adduced  in  the  case  of  the  starch,  —  a  steady  and  uniform 
market,  occasioned  by  a  restrictive  duty,  enabled  the  manu- 
facturers to  produce  cheaper  than  with  the  contrary  condi- 
tions. 

The  history  of  the  Bessemer  steel-rail  manufacture  in  this 
country  is  another  notable  example.  In  1S64,  there  was  no 
manufactory  of  this  kind  in  this  country  :  all  the  steel  rails 
used  were  imported  from  England,  and  sold  at  a  hundred 
and  fifty  dollars  per  ton  in  gold.  There  was  a  duty  of  forty- 
five  per  cent  ad  valorem.  Certain  parties  interested  in 
extending  the  use  of  these  rails  on  our  roads  went  to  Eng- 
land to  negotiate  for  the  purchase  of  a  quantity  of  them, 
but  could  make  no  more  favorable  terms  than  those  above 
mentioned.  Upon  their  return,  a  company  was  organized, 
works  involving  great  expense  were  constructed,  and  work- 
men were  imported.  All  this  time  the  English  rails  were 
selling  at  $150  to  ^162.  But  the  American  product  was  put 
at  ^130,  when  instantly  the  English  article  was  offered  at  the 
same  price,  and,  soon  after,  at  $120.  Two  years  later,  when 
the  increase  of  the  manufacture  threatened  to  drive  out  the 
foreign  article,  the  price  of  English  rails  was  put  at  $110, 
and,  soon  after,  at  $80.  This  was  below  the  cost  of  pro- 
duction to  our  manufacturers,  and  their  mills  were  in  danger 
of  being  closed  at  an  enormous  loss  of  capital.  At  this 
point,  fifteen  of  the  consianers  of  steel  rails  petitioned  Con- 
gress to  increase  the  duty.  Attention  is  called  to  the  fact 
that  these  petitioners  were  consumers,  persons  interested  in 


lOO  POLITICAL   ECONOMY. 

a  diminution,  and  not  in  an  increase,  of  prices ;  and  it  was 
in  this  interest  that  they  petitioned.  They  knew,  that,  if 
this  competition  were  destroyed,  prices  would  again  rise  ex- 
orbitandy.  The  request  was  granted,  though  only  to  the 
extent  of  about  four  per  cent,  but  enough  to  secure  the 
American  enterprise  from  being  overborne.  Under  the  stim- 
ulus of  this  action,  there  has  been  an  extraordinary  develop- 
ment of  the  manufacture ;  and  the  prices  have  constantly 
tended  downward,  till  now  steel  rails  are  sold  for  about 
thirty-five  dollars  a  ton. 

If  it  be  said  that  much  of  this  diminution  comes  from  the 
improvements  in  methods  of  manufacture,  this  may  be  freely 
admitted  •  and  yet  it  is  tolerably  evident  that  a  very  large 
proportion  of  these  improvements  came  from  the  estabhsh- 
ment  of  the  manufacture  in  America,  and  the  sharp  compe- 
tion  occasioned  thereby.  It  is  also  clearly  evident  that  no 
such  improvements  took  place,  within  two  or  three  years,  as 
to  reduce  the  price  from  a  hundred  and  sixty-two  dollars  to 
a  hundred  and  five  dollars. 

The  same  phenomena,  though  less  marked,  are  found  in 
connection  with  the  protected  manufactures  of  silk,  of  wors- 
ted, and  many  others,  where  prices  have  steadily  declined, 
and  almost  in  a  ratio  with  the  increase  of  the  industry  here. 
It  is  useless  to  say,  that,  in  so  many  cases,  this  diminution  is 
owing  wholly  to  other  causes.  So  many  instances,  and  under 
such  varied  circumstances,  would  seem  positively  to  indicate 
some  common  cause. 

7.  The  objection  that  protection  causes  a  decrease  of  ex- 
ports is  largely  insisted  on  by  many  writers  ;  but  there  are 
many  others  who  deny  that  it  has  any  force.  In  the  first 
place,  it  is  said,  if  it  were  true  that  the  protected  country 
had  no  need  of  the  goods  from  abroad,  by  reason  of  manu- 
facturing them  at  home,  it  would  also  have  no  need  to  send 


ARGUMENTS  IN  FAVOR   OF  FREE    TRADE.      lOI 

its  own  products  abroad  ;  since  there  would  be,  by  the  very 
fact  before  mentioned,  all  the  larger  demand  for  them  at 
home.  It  is  not  necessary  to  import  simply  for  the  sake  of 
importing,  nor  to  export  for  the  sake  of  exporting.  But  in 
the  second  place  it  must  be  admitted,  that,  after  each  nation 
has  exhausted  all  its  own  facilities  of  production,  there  will 
still  be  many  desirable  things,  which,  if  had  at  all^  must  be 
imported.  It  is  also  true  again,  that  those  communities  which 
most  largely  and  judiciously  multiply  their  own  industries, 
and  thereby  cultivate  societary  completeness,  are  the  com- 
munities which  have  the  largest  variety  of  productions 
peculiar  to  themselves,  and  liable  to  be  wanted  by  other 
communities.  Hence  it  is  that  those  nations  which  have  the 
greatest  diversity  of  industries  are  those  whose  foreign  trade 
is  also  the  largest.  It  is  in  accordance  with  this  principle, 
that  we  find,  that,  in  the  nations  in  which  the  protective 
policy  prevails,  the  foreign  trade,  instead  of  diminishing  as 
the  objection  assumes,  increases  more  than  in  the  unpro- 
tected, or  slightly  protected,  countries.  Take  the  United 
States  as  an  example.  In  the  decade  from  1870  to  1880, 
under  a  tariff  exceptionally  high,  and  having  many  other 
exceptional  features,  —  a  tariff  under  which,  if  under  any 
that  was  possible,  the  unfavorable  effect  under  consideration 
should  have  been  conspicuous,  —  we  find  that  the  exports 
increased  from  $420,500,275  in  value,  to  $841,501,388,  or  a 
little  more  than  a  hundred  per  cent ;  and  the  imports,  from 
$376,616,473  in  value,  to  $741,501,725,  or  a  little  less  than 
a  hundred  per  cent. 

Take  the  case  of  France.  More  than  fifty  years  ago,  the 
"  Edinburgh  Review,"  in  an  article  on  French  industry  and 
commerce,  predicted,  that,  under  the  protective  system  then 
in  operation  there,  the  foreign  trade  of  that  country  would 
be  neariy  ruined.      During  the  decade  in  the  middle  of 


102  POLITICAL   ECONOMY. 

which  this  prediction  was  made,  the  exports  of  France  av- 
eraged but  little  more  than  500,000,000  francs.  In  1854, 
about  twenty-five  years  later,  they  amounted  to  1,400,000,000 
francs,  having  nearly  trebled.  In  1874,  France  having  then 
recently  greatly  increased  her  protective  duties  after  a  period 
of  relaxation,  her  exports  to  Great  Britain  and  Ireland  alone 
amounted  to  1,907,212,655  francs;  being  nearly  three  times 
the  value  of  the  British  exports  to  France. 

8.  It  is  undoubtedly  the  fact,  that  the  protective  system 
has  been  often  perverted  from  its  legitimate  purposes,  and 
that  any  tariff  arranged  with  reference  to  this  principle  will 
operate  with  great  inequality.  This  is  also  the  case  with 
every  system  of  taxation.  Still,  in  view  of  the  arguments  on 
both  sides  briefly  presented,  it  seems  apparent,  that,  to  such 
a  nation  as  our  own  especially,  far  more  good  than  evil 
would  come  from  a  judicious  application  of  the  principle 
of  restriction.  That  our  present  system  is  greatly  imperfect, 
and  that  in  many  instances  it  is  excessive,  is  not  at  all  un- 
likely. But  that  the  country  would  find  advantage  in  the 
entire  abandonment  of  the  system,  is  vastly  improbable. 


CHAPTER  VI. 

THE   INSTRUMENT   OF   EXCHANGE. 

1.  Whatever  aids  in  increasing  the  facilities  of  association, 
enhances  the  power  of  man  over  nature.  The  necessity 
of  money  as  such  a  means  is  easily  made  manifest.  The  de- 
sign of  commerce  is,  that  each  person,  while  producing  but  a 
single  commodity,  or,  at  most,  but  a  very  few  commodities, 
may  equitably  avail  himself  of  the  many  commodities  that 
he  needs.  We  have  seen,  that,  though  one  man  may  pro- 
duce but  one  thing,  he  may  produce  enough  of  this  to  sup- 
ply a  thousand  persons.  At  the  same  time  he  may  need  a 
thousand  things  which  he  does  not  produce.  Hence  a 
thousand  men  find  opportunity  to  minister  to  his  support. 

2.  The  first  exchanges  in  primitive  times  would  naturally 
be  by  barter,  each  one  exchanging  the  surplus  of  his  own 
products  for  such  surplus  of  others  as  he  himself  might  de- 
sire. But  the  necessity  of  some  other  method  would  early 
evince  itself.  It  would  be  found  to  be  inconvenient  and  ex- 
pensive for  the  shoemaker  who  has  made  a  dozen  pair  of 
shoes,  to  go  with  them  to  all  the  other  producers  whose  wares 
he  may  just  at  that  time  particularly  want.  Even  if  the  ex- 
pense could  be  in  some  way  mitigated,  there  would  be  still 
other  serious  embarrassments.  He  might  want  a  hat,  but 
perhaps  the  hatter  does  not  at  that  time  want  any  shoes.  He 
desires  a  coat ;  but  the  tailor  may  only  want  a  single  pair  of 

103 


I04  POLITICAL   ECONOMY. 

shoes,  while  an  equal  exchange  would  require  six  or  seven 
pairs.  Thus,  to  find  purchasers  of  his  own  commodity  among 
those  whose  commodities  he  desires  in  quantities  corre- 
sponding to  those  of  his  desired  by  them,  would  be  a  pro- 
tracted and  tedious  business. 

A  partial  remedy  for  this  inconvenience  would  be  found 
in  the  agency  of  trade,  —  the  establishment  of  places  where 
all  kinds  of  commodities  would  be  taken  by  the  merchant, 
and  where  within  certain  hmits  one  would  be  reasonably 
sure  to  find  whatever  was  desirable  in  return  for  products 
brought  in.  This  might  be  further  supplemented  by  book- 
account.  But,  greatly  as  these  devices  would  abridge  and 
expedite  the  business  of  exchange,  it  would  be  found  that 
not  only  an  agency  is  necessary,  but  also  an  instnunent,  —  a 
medium  readily  receivable  for  all  commodities,  and  in  ex- 
change for  which  all  desirable  commodities  would  be  readily 
taken. 


CHAPTER  VII. 

THE  PRECIOUS  METALS. 

1.  The  great  majority  of  political  economists  agree  as  to 
certain  characteristics  which  should  belong  to  any  sub- 
stances used  as  the  medium  of  exchange.  The  mere  enu- 
meration of  these  indicates  the  reason  why  certain  metals 
have  been  almost  universally  accepted  for  this  purpose. 
I.  It  is  said  that  the  material  should  have  value,  aside  from 
its  use  as  money.  2.  It  should  be  generally  uniform  in 
value ;  that  is,  the  value  should  not  be  greater  in  one  place 
than  in  another.  3.  It  should  comprise  much  value  in 
small  bulk.  4.  It  should  have  some  close  approximation  to 
constancy  of  value.  5.  It  should  not  be  easily  destructible. 
6.  It  should  be  divisible  into  small  portions,  which  can  be 
re-united  without  loss.  7.  It  must  be  of  universal  use.  8.  It 
must  be  capable  of  receiving  and  retaining  stamps  and 
marks  indicating  its  current  value. 

These  characteristics  are  attributed  to  gold  and  silver. 
I.  They  have  a  natural  value,  aside  from  that  implied  in 
their  use  as  money.  They  are  employed  in  the  arts,  though 
to  a  less  extent  than  for  the  purpose  of  money.  On  this 
account,  should  either  of  them  be  demonetized  to  any  con- 
siderable extent,  the  value  would  greatly  diminish.  2.  Being 
simple  substances,  and,  in  proportion  to  their  value,  easily 
transportable,  it  has  been  generally  held  that  they  were  of  the 

105 


I06  POLITICAL   ECONOMY. 

same  value  in  every  part  of  the  world.  This,  however,  is 
denied  by  several  eminent  writers.  It  is  not  practicable  to 
fully  discuss  this  question,  but  I  will  refer  to  an  authority  or 
two.  Professor  Cairnes,  one  of  the  ablest  of  recent  writers 
on  political  economy,  in  speaking  of  the  doctrine  that  the 
value  of  gold  is  the  same  all  the  world  over,  says,  "  Now,  if 
this  be  so,  as  the  value  of  gold  is  merely  another  expression 
for  the  gold  prices  of  commodities,  it  must  follow  that  a 
high  or  low  scale  of  general  prices  existing  in  any  country, 
and  not  shared  by  every  other,  is  an  impossible  occurrence. 
As  there  is  no  local  value  of  gold,  there  can  be  no  local 
scale  of  prices.  I  have  no  hesitation,  however,  in  expressing 
my  opinion  that  the  doctrine  in  question,  with  whatever 
confidence  advanced,  is  totally  destitute  of  foundation." ' 
Ricardo  had  some  time  before  said,  "  The  value  of  money 
is  never  the  same  in  any  two  countries ;  depending,  as  it 
does,  on  relative  taxation,  on  manufacturing  skill,  the  advan- 
tages of  climate,  natural  productions,  and  many  other 
causes."  Other  writers,  while  substantially  admitting  the 
truth  of  the  above  statements,  claim  that  the  variation  is  not 
of  large  amount.  Yet  obviously  it  must  vary  with  the  scale 
of  general  prices. 

3.  That  these  substances  comprise  much  value  in  small 
bulk,  is  sufficiently  palpable.  4.  It  has  also  been  generally 
held,  that  gold  and  silver  are  constant  and  uniform  in  their 
value.  Yet  it  has  of  late  been  evident,  that,  with  the  vastly 
increased  production  of  these  metals,  their  value  has  greatly 
diminished  :  but  this  diminution,  it  is  claimed,  comes  gradu- 
ally and  through  the  lapse  of  years ;  so  that  the  change  is 
scarcely  appreciable  within  the  time  for  which  contracts  are 
ordinarily  made.  Most  writers  regard  them  as  far  less  vari- 
able than  any  other  commodity  which  at  present  exists.     It 

^  Leading  Principles  of  Political  Economy,  etc.,  p.  408. 


THE  PRECIOUS  METALS.  lO/ 

is  highly  probable,  however,  that  far  too  great  an  estimate 
has  been  placed  upon  this  supposed  characteristic.  It 
comes  in  part  from  the  confusion  of  price  with  value.  The 
price  of  all  other  things  is  their  value  expressed  in  money. 
The  price  of  money  is  its  value  expressed  in  itself.  In 
other  words,  there  is  no  such  thing  as  the  price  of  money. 
Where  gold  and  silver  are  the  basis  of  money,  they  have  no 
price.  But  their  value,  like  the  value  of  other  things,  is 
their  purchasing  power.  Because  they  are  made  a  standard 
of  value,  and  because  this  value  is  always  equal  to  itself,  we 
are  easily  deluded  into  the  belief  that  it  never  varies. 

Says  M.  Bastiat,  an  eminent  economist  of  France,  "A 
measure  of  length,  size,  and  surface  is  a  quantity  agreed 
upon  and  unchangeable.  It  is  not  so  with  the  value  of  gold 
and  silver.  This  varies  as  much  as  that  of  com,  wine,  cloth, 
and  labor,  and  from  the  same  causes  ;  for  it  has  the  same 
source,  and  obe3's  the  same  laws.  Gold  is  brought  within 
our  reach,  just  like  iron,  by  the  labor  of  miners,  the  advances 
of  capitalists,  and  the  combination  of  merchants  and  sea- 
men. It  costs  more  or  less,  according  to  the  expense  of  its 
production,  according  to  whether  there  is  little  or  much  in 
the  market,  whether  it  is  little  or  much  in  request ;  in  a 
word,  whether  it  undergoes  the  fluctuations  of  all  other 
human  productions."'  Professor  Fawcett  holds  that  "The 
value  of  gold  accurately  varies  in  the  inverse  ratio  of  the 
prices  of  commodities.  If  the  prices  of  all  commodities 
rise  one  hundred  per  cent,  the  value  of  gold  falls  one  hun- 
dred per  cent ;  for  the  same  quantity  of  gold  will  exchange 
for,  or  purchase,  only  one-half  as  much  of  the  commodity."  ^ 

1  Essays  in  Political  Economy  (Putnam's  translation),  p.  166. 

2  Manual  of  Political  Economy,  pp.  365,  366.  There  is  a  singular  error  in  this 
statement,  which  it  seems  strange  that  such  a  writer  should  make.  If  prices  rise  one 
hundred  per  cent,  gold  falls  fifty  per  cent.  If  it  should  fall  oue  hundred  per  cent,  its 
value  would  be  nothing  at  all. 


I08  POLITICAL   ECONOMY. 

5 .  These  metals  are  among  the  most  indestructible  of  sub- 
stances, and  the  wear  and  tear  of  them  is  inconsiderable  and 
inexpensive. 

6.  They  are  divisible  into  small  portions,  to  suit  the  con- 
venience of  users  ;  and  can  be  readily  re- united  by  melting, 
whenever  desirable.  In  this  respect  they  differ  from  dia- 
monds, which  comprise  even  greater  value  in  the  same  small 
bulk ;  but  when  the  latter  have  been  once  divided  into  frag- 
ments, they  cannot  be  re-united.  Another  difference  is,  that 
gold  and  silver  have  a  value  proportional  to  their  quan- 
tity ;  while,  in  the  case  of  diamonds,  the  larger  are  usually 
of  proportionally  greater  value,  —  that  is,  a  diamond  twice  as 
large  as  another  may  be  of  five  times  the  value. 

7.  Gold  and  silver  are  also  of  almost  universal  use,  and 
can  be  transjDorted  from  one  country  to  another  at  slight 
expense. 

8.  Finally,  they  are  capable  of  receiving  stamps  and  marks 
in  the  way  of  coinage,  by  which  their  character  and  value  are 
indicated. 

2.  These  characteristics  of  gold  and  silver  have  made  them 
media  of  exchange  from  very  early  ages,  even  before  men 
were  fixed  in  permanent  habitations. 

When  and  where  coinage  began,  is  not  known ;  but  prob- 
ably it  was  somewhere  in  Western  Asia,  about  800  B.C. 
Though  gold  and  silver  are  the  most  widely  adopted  media 
of  exchange,  they  are  not  the  only  substances  which  have 
been  used  for  this  purpose  :  iron,  cattle,  wheat,  tobacco, 
shells,  beads,  the  skins  of  animals,  and  other  articles,  have 
ofiiciated  in  this  capacity. 

3.  The  relation  of  government  to  money  is  a  matter  of 
some  importance.  It  is  to  be  observed,  that  gold  and  silver 
became  the  recognized  instrument  of  exchange  in  the  early 
civilizations,  not  by  any  arbitrary  edict  of  rulers,  but  by  the 


THE  PRECIOUS  METALS.  IO9 

Spontaneous  consent  of  society,  growing  out  of  a  general 
perception  of  tlieir  natural  fitness  for  this  office.  But  it  by 
no  means  follows  tliat  government  has  nothing  to  do  in  rela- 
tion to  it.  Government  must,  for  one  thing,  determine  what 
shall  be  a  legal  tender ;  that  is,  what,  when  offered  in  pay- 
ment of  a  debt,  shall  be  a  legal  discharge  of  that  debt.  A 
vital  object  of  legislation  is,  to  prevent  uncertainty  in  the 
interpretation  of  contracts.  Accordingly,  it  must  prescribe 
what  shall  constitute  the  fulfilment  of  a  contract,  or  a  dis- 
charge of  its  obligation.  Otherwise  there  might  be  conten- 
tion and  costly  litigation.  Thus,  one  man  owing  another  for 
a  barrel  of  flour,  the  former  might  offer  to  pay  in  oats,  of 
which  the  latter  is  not  just  now  in  want ;  or  in  glass  bottles, 
which  he  will  never  want.  Or  the  creditor  might  refuse  to 
receive  money  of  any  kind,  and  demand  some  commodity 
difficult  or  impossible  for  the  debtor  to  obtain.  Government 
may  prevent  all  liability  to  this  trouble  by  determining,  in 
cases  where  no  commodity  is  designated,  what  shall  be  re- 
garded as  a  fulfilment  of  the  contract.  But  it  will,  at  the 
same  time,  leave  the  contracting  parties  free  to  designate 
any  material  as  the  medium  of  payment ;  and,  when  so 
designated,  both  parties  will  be  held  to  the  terms  of  the 
agreement. 

Government  has  also  a  function  to  exercise  in  determining 
the  kinds  of  coins,  their  names,  their  weight,  and  the  degree 
of  purity  of  the  metal ;  what  shall  be  the  monetary  unit,  and 
the  stamps  and  marks  to  be  put  upon  the  several  pieces  to 
distinguish  them.  It  may  also  punish  any  corruption  or 
counterfeiting  of  the  coin.  It  must  fix  the  monetary  stand- 
ard, and  determme  whether  it  shall  be  one  or  the  other,  or 
both,  or  neither,  of  the  precious  metals.  These  have  been 
regarded  by  most  writers  as  the  main  functions  of  the  gov- 
ernment in  relation  to  money;  and  it  has  generally  been 


no  POLITICAL   ECONOMY. 

taught,  that  much  beyond  these  it  is  not  possible  for  the 
government  to  go  without  transcending  its  sphere. 

4.  What  shall  constitute  the  monetary  standard  ?  is  a  ques- 
tion open  to  some  discussion.  Three  different  standards 
have  been  in  use  in  different  modern  nations,  and  at  different 
times.  Some  have  fixed  upon  gold,  others  upon  silver,  and 
others  still  upon  both.  As  between  gold  and  silver,  the 
preference  depends  chiefly  upon  the  stability  of  their  respec- 
tive values,  but  subordinately  also  upon  the  convenience  of 
handling.  There  is  not  only  a  difference  among  the  several 
nations  concerning  the  standard  adopted,  but  the  same  na- 
tion has  changed  its  standard,  and  sometimes  more  than 
once.  Many  years  ago,  Germany  adopted  silver  :  within  the 
last  few  years  it  has  changed  to  gold.  In  1858,  Holland 
adopted  silver,  having  previously  had  the  double  standard. 
She  also  has  recently  changed  to  the  gold  standard.  \Vhat 
is  called  the  Latin  Monetary  Union  —  comprising  France, 
Belgium,  Switzerland,  Italy,  and  Spain  —  nominally  adheres 
to  the  double  standard,  though  the  coinage  of  silver  in  all  of 
them  has  been  restricted,  and  for  a  time  prohibited.  Greece 
and  Roumania  have  the  same  system,  as  do  also  Peru,  Ecua- 
dor, and  New  Granada,  in  America.  The  single  silver  stand- 
ard is  maintained  by  Austria  and  Russia,  though  in  these 
countries  specie  payment  has  been  for  a  long  time  suspended. 
Nearly  all  the  vast  population  of  Asia  make  silver  the  legal 
standard,  as  do  several  nations  on  the  American  continent, 
—  about  one-third  of  the  inhabitants  of  the  world  alto- 
gether. 

Great  Britain  adopted  the  gold  standard  about  sixty-seven 
years  ago,  —  the  first  nation  ever  making  the  experiment. 
The  same  standard  now  exists  in  Portugal,  Egypt,  Turkey, 
the  Scandinavian  kingdom,  a  portion  of  South  America,  and 
the  English  colonies  of  Australasia  and  South  Africa.     Ger- 


THE   PRECIOUS  METAIS.  Ill 

many  adopted  gold  about  1870,  and  the  United  States  in 
1873  ;  but  the  latter  returned  to  the  double  standard  in 
1878.  In  all  these  countries,  silver  is  used  as  a  subsidiary 
coin,  and  is  made  a  legal  tender  for  a  limited  amount. 

5.  The  relative  value  of  gold  and  silver  varies  from  time 
to  time.  From  the  earliest  period  of  which  we  have  any 
record,  —  that  is,  from  about  1600  B.C.,  —  down  to  the  be- 
ginning of  the  Christian  era,  they  stood  to  one  another  in 
the  relation  of  about  i  to  12  or  13,  occasionally  going  up 
to  I  to  14,  and  once  falling  as  low  as  i  to  8.93.  From  that 
time  to  1640  A.D.,  the  ratio  varied  from  i  to  14.40  to  i  to 
10.50.  Since  1640  it  has  never  gone  below  i  to  14,  nor  so 
high  as  I  to  16  till  1872.  The  legal  ratio  adopted  by  the 
European  governments  for  many  years  has  been  that  of  i  to 
15^.  Since  1872,  there  have  been  marked  variations  in  the 
ratio.  For  a  while  it  increased  gready,  at  one  time  going 
as  high  as  i  to  22.54,  though  this  was  temporary.  For  most 
of  the  time  it  has  been  i  to  17  or  18. 


CHAPTER  VIII. 

CERTAIN  DOCTRINES   CONCERNING   MONEY   CONSIDERED. 

1.  That  money  is  not  synonymous  with  wealth,  is  a  prop- 
osition requiring  Httle  discussion.  At  this  day,  to  most 
thoughtful  persons,  it  appears  like  a  truism.  Yet,  because 
in  former  times  many  wise  men  thought  differently,  and 
because  some  popular  fallacies  have  grown  out  of  the  oppo- 
site doctrine,  and  are  still  extant,  it  is  proper  to  give  some 
attention  to  it.  Some  nations  were  so  thoroughly  imbued 
with  this  latter  notion,  that  it  became  an  important  object 
of  legislation,  how  to  prevent  any  exportation  of  the  precious 
metals ;  such  exportation  being  regarded  as  so  much  sub- 
tracted from  the  wealth  of  the  country.  The  world  has  been 
some  ages  in  learning  that  wealth  consists  not  in  money,  — 
which  is  only  an  instrument  for  the  exchange  of  those  arti- 
cles constituting  wealth,  —  but  in  the  abundance  of  those 
things  which  command  money. 

2.  The  value  of  the  money  in  circulation  in  the  commu- 
nity need  be  only  a  small  fraction  of  the  value  of  the  com- 
modities exchanged  through  its  instrumentality.  To  most 
thoughtful  persons,  this  will  appear  also  as  a  truism.  Yet  we 
sometimes  hear  men  reasoning  as  though  the  value  of  the 
exchanges  made  were  somehow  equivalent  to  that  of  the 
money  used  in  making  them.  A  familiar  example  will  illus- 
trate the  fact  that  a  small  sum  of  money  will  effect  exchanges 

IJ2 


CERTAIN-  DOCTRINES   CONCERNING   MONEY.      II3 

involving  many  times  its  value.  Suppose  you  are  in  want  of 
a  hat :  you  have  five  dollars,  which  you  exchange  with  the 
hat-merchant  for  the  article  desired.  The  hatter  pays  it  to 
a  man  of  whom  he  has  bought  some  wood.  The  latter 
buys  with  it  a  barrel  of  flour ;  and  the  flour-merchant  gives 
it  to  one  of  his  clerks,  in  payment  for  services.  The  clerk 
pays  it  for  board  to  his  landlady ;  and  she  puts  it  with  other 
money,  to  discharge  her  quarter's  rent-bill.  The  landlord 
sends  it  to  his  son  at  school,  who  uses  it  to  pay  his  tuition. 
Here  are  exchanges  to  the  amount  of  thirty-five  dollars, 
though  but  one-seventh  of  that  amount  of  money  has  been 
used.  Thus  it  is  evident  that  the  money  requisite  to  effect 
the  exchanges  of  a  community  equals  in  value  only  that  of 
a  small  part  of  the  commodities  exchanged  through  its  use. 
As  we  shall  see  hereafter,  the  exchanges  made  without  the 
direct  intervention  of  money  are  still  greater  in  proportion 
to  the  amount  of  the  medium  in  circulation. 

3.  It  is  a  commonly  received  doctrine,  that  the  value  of 
money  is  proportionally  greater  when  its  quantity  is  less,  and 
vice  versa.  There  is  no  doubt,  that,  as  a  general  principle, 
this  is  true  ;  yet  the  proposition  is  not  to  be  construed  too 
rigidly,  and  it  is  practically  subject  to  many  modifications. 
There  is  very  little  doubt,  that,  in  a  state  of  society  otherwise 
perfectly  stationary,  where  previously  there  had  been/«i-/  the 
pi'oper  amount  of  money  to  furnish  the  best  facilities  for 
exchange  ;  where  money  was  the  sole  instrument  of  exchange, 
and  there  was  no  resort  to  the  mechanism  of  credit-transfers, 
—  the  introduction  of  a  considerable  addition  to  the  amount 
of  money  in  circulation  would  increase  prices,  while  a  sub- 
traction from  this  amount  would  diminish  prices. 

The  relation  of  the  amount  of  money  to  general  prices  is 
affected  by  a  variety  of  actual  facts,  some  of  which  are 
pretty  certain  to  be  present  in  any  state  of  civilized  society. 


114  POLITICAL    ECOAOMV. 

I.  There  is  seldom  just  the  amount  of  money  in  circula- 
tion that  would  furnish  the  most  nearly  perfect  facility  of 
exchange.  It  is  impossible  to  determine  how  much  is  needed 
in  any  given  case.  But  it  is  certain  that  some  particular 
quantity  meets  the  conditions  better  than  any  other.  If  there 
be  either  more  or  less  than  this,  commerce  will  be  unfavor- 
ably affected.  It  is  the  doctrine  of  a  certain  school,  that,  if 
a  purely  metallic  currency  exist,  "  any  amount  is  enough  ;  " 
since,  it  is  said,  prices  will  adjust  themselves  to  that  amount. 
A  distinguished  statesman  illustrates  this  by  saying,  that,  if 
a  single  yardstick  can  measure  one  piece  of  cloth,  it  can 
measure  any  number  of  other  pieces.  This  is  true  ;  but 
who  would  ever  think  of  saying,  that  in  a  great  dry-goods 
store,  employing  several  scores  of  salesmen,  "  any  number 
of  yardsticks  would  be  enough,"  since  the  business  would 
adjust  itself  to  the  number?  Evidently  the  number  must  be 
something  more  than  a  very  few,  or  the  business  must  suffer. 
If  money  is  the  instrument  of  exchange,  there  must  be  a 
certain  ratio  of  the  amount  of  money  to  the  amount  of 
exchange  which  is  normal ;  and  any  variation  from  this  can 
but  be  in  some  degree  disadvantageous. 

Suppose,  that,  in  a  nation  where  the  amount  of  the  circu- 
lating medium  has  been  less  than  this  normal  quantity,  by 
some  means  there  is  an  increase.  Now,  no  doubt,  prices  will 
rise.  This  will  follow  not  merely  because  there  is  more  money, 
but  for  other  reasons  as  well.  By  the  very  hypothesis  of  there 
being  too  little  previously,  commerce  was  crippled,  production 
was  checked,  labor  was  not  fully  or  remuneratively  employed  ; 
and  the  purchasing-power  of  the  whole  community  was  thus 
diminished,  making  the  demand  even  smaller  than  the  sup- 
l)ly.  The  addition  to  the  machinery  of  exchange  would 
furnish  a  remedy  for  the  depression  :  industries  would  revive, 
labor  would  be  in  demand,  exchanges  would  be  ready  and 


CERTAIN  DOCTRINES  CONCERNING  MONEY.      II5 

quick,  the  purchasing-power  of  the  community  would  be 
enhanced,  and  prices  would  rise.  They  would  rise  even 
without  any  addition  to  the  stock  of  money,  if,  without  this, 
these  other  conditions  could  have  been  secured.  So  that  the 
increase  of  money  causes  the  increase  of  prices,  not  merely 
by  its  own  occurrence,  but  quite  as  much  by  the  impulse  its 
presence  has  given  to  business.  We  should  find  an  equally 
clear  illustration  of  the  general  principle  in  the  case  of  a 
withdrawal  of  a  portion  of  the  circulating  medium. 

2.  Another  factor  to  be  regarded  here  is  that  of  the  per- 
petually increasing  facilities  of  production.  These  diminish 
the  cost  of  commodities,  and  consequently  cause  prices  to 
fall.  The  multiplication  of  the  appliances  by  which  the 
forces  of  nature  are  now  compelled  to  do  the  work  formerly 
performed  slowly  and  painfully  by  man,  is  patent  to  the  com- 
monest observation.  This  very  multiplication  of  production 
in  proportion  to  cost  would,  of  itself,  tend  to  multiply  ex- 
change, and,  so  far  forth,  would  create  a  greater  demand  for 
money  to  facilitate  the  exchanges ;  while,  at  the  same  time, 
the  diminution  of  the  cost  of  production  would  tend  to 
depress  prices.  Hence,  even  if,  other  things  being  equal, 
the  increase  of  money  would  enhance  prices,  the  fact  alluded 
to  would  wholly,  and  probably  much  more  than,  neutralize 
the  effect. 

There  is  yet  another  modifying  fact  to  be  noticed.  The 
influence  of  the  increase  of  productive  facilities  is  felt  much 
more  in  manufactured  articles  and  finished  commodities  than 
in  coarse  products  and  raw  material ;  so  that  while  the  for- 
mer, under  conditions  usually  existing  in  civilized  communi- 
ties, are  continually  growing  cheaper,  most  agricultural  and 
mining  products,  as  also  land  and  labor,  tend  to  grow  dearer. 
It  is  thus,  as  Mr.  Carey  has  shown,  that,  in  a  prosperous  com- 
munity, the  prices  of  raw  material  and  of  finished  products 
more  and  more  approximate. 


Il6  POLITICAL   ECONOMY. 

3.  It  is  evident  that  commerce,  or  at  least  the  desire  to 
exchange  in  our  modern  communities,  tends  to  increase 
more  rapidly  than  metallic  money.  Hence  the  various  de- 
vices by  which  the  various  forms  of  credit  are  made  to  fur- 
nish a  large  supplementary  mechanism  of  exchange,  —  by 
means  of  book-account,  bank-deposits,  bills  of  exchange, 
drafts,  checks,  etc.  As  we  shall  see  hereafter,  much  the 
larger  proportion  of  the  world's  exchanges  are  effected  in 
this  way.  These  methods  would  be  adopted  to  some  extent, 
even  if  the  abundance  of  coin  were  ever  so  great.  But 
there  are  limits  to  their  profitable  employment,  and  those 
limits  are  more  likely  to  be  overstepped  when  the  supply  of 
currency  is  scanty  than  when  it  is  abundant. 

It  will  be  seen,  from  the  foregoing  considerations,  that 
while  money,  like  other  objects  of  value,  is  subject  to  the 
law  of  supply  and  demand  ;  and  while,  all  other  conditions 
remaining  the  same,  prices  are  inversely  as  the  amount  of 
money,  —  yet  there  are  so  many  and  such  complicated 
counter  influences  at  work,  that  the  rule  is  not  only  of  little 
practical  consequence,  but  it  is  sometimes  false  and  mis- 
leading. Says  Stephen  Colvvell,  "  The  notion  long  prevalent, 
that  prices  were  exactly  adjusted  to  the  quantity  of  currency, 
is  shown  to  have  long  since  exploded.  Among  the  innumer- 
able influences  which  go  to  determine  the  general  range  and 
fluctuation  of  prices,  the  quantity  of  money  is  found  to  be 
one  of  the  least  effective."  ' 

I  Ways  and  Means  of  Payment,  p.  17. 


CHAPTER   IX. 

THE   CREDIT   ELEMENT   IN   THE   INSTRUMENT   OF   EXCHANGE. 

1.  So  far,  the  only  money  spoken  of,  except  incidentally, 
has  been  gold  and  silver.  The  characteristics  which  have 
made  them  the  almost  universal  media  of  .exchange  have 
been  indicated.  Yet  it  must  be  evident  to  the  most  superfi- 
cial observer,  that,  especially  in  recent  times,  they  have  con- 
stituted only  a  minor  portion  of  the  machinery  of  exchange. 
The  chief  reason  for  this  is  their  limited  quantity.  More- 
over, the  amount  of  them  which  would  now  be  absorbed  in 
making  all  the  exchanges  of  the  commercial  world,  would 
render  them  too  costly  an  instrument. 

It  is  true  that  the  production  of  these  metals  within  the 
last  few  centuries,  and  especially  within  the  last  thirty-five 
years,  has  been  very  great.  But  great  as  has  been  the  in- 
crease, the  increase  of  demand  for  them  would  have  been 
still  greater  but  for  the  substitution  of  other  devices.  Be- 
sides the  costliness  of  the  material,  even  were  there  a  suffi- 
ciency of  it,  the  handling  and  conveyance  of  such  vast  sums 
as  would  at  times  be  necessary,  would  be  exceedingly  incon- 
venient and  expensive,  if  not  at  times  impossible. 
"  2.  The  system  of  credit  would  easily  suggest  itself,  not  only 
as  a  matter  of  convenience  in  other  respects,  but  also  as  an 
instrument  of  exchange.  Let  us  take  the  following  as  an 
illustration.     In  a  rural  region,  a  farmer  buys  of  the  country 

117 


Il8  POLITICAL   ECONOMY. 

merchant  from  time  to  time,  for  a  series  of  months,  whatever 
he  may  need  for  his  family  or  his  farm,  —  small  groceries, 
cotton  cloth,  crockery,  furniture,  scythes,  rakes,  hoes,  shovels, 
etc. ;  with  which  he  is  duly  debited.  From  time  to  time 
also  he  carries  to  the  store,  butter,  eggs,  cheese,  apples,  po- 
tatoes, wool,  wheat,  corn,  etc. ;  with  these  he  is  credited. 
At  the  end  of  the  year  the  accounts  are  balanced,  and  what- 
ever difference  there  is  —  and  ordinarily  it  would  be  small  — 
might  be  paid  in  cash,  or  carried  over  to  a  new  account. 
Thus  exchange  to  the  amount  of  several  hundred  dollars  may 
be  made,  and  only  ten  or  fifteen  dollars  in  money  be  used. 
Credit  here  in  the  form  of  book-account  has  been  the  instru- 
ment of  exchange.  It  is  to  be  noted,  however,  that  refer- 
ence is  had,  in  all  these  exchanges,  to  money  as  the  measure 
of  values.  The  pound  of  tea  is  debited,  not  as  so  much 
tea,  but  as  one  dollar ;  the  scythe  and  snath,  not  as  such 
merely,  but  as  three  or  four  dollars,  as  the  case  may  be.  So 
the  farmer  is  credited,  not  with  the  ten  pounds  of  butter 
simply,  but  with  three  dollars  ;  and  the  thirty  pounds  of 
cheese  is  put  down  as  five  dollars. 

Now,  let  us  suppose  that  the  farmer,  whom  we  will  call  A, 
has  a  balance  of  fifteen  dollars  in  his  favor  in  his  settlement 
with  the  merchant,  whom  we  may  call  B.  A  also  settles  with 
the  blacksmith,  whom  we  may  designate  as  C,  with  whom  he 
has  an  account  of  a  similar  character  to  that  with  B.  Let 
us  suppose  that  the  balance  here  amounts  to  fifteen  dollars 
against  A.  The  latter  may  now  give  C  an  order  on  B  for 
this  amount.  C  takes  it  to  B,  who  accepts  it,  and  debits  the 
amount  to  A.  Possibly  C  may  also  have  an  account  with  B, 
and  the  balance  against  the  former  may  be  just  fifteen  dol- 
lars. In  that  case  the  amount  debited  to  A  on  the  accept- 
ance of  his  order  will  be  debited  to  C  ;  and  thus  all  three 
accounts,  amounting  perhaps  to  several  hundred  dollars,  will 


THE    CREDIT  ELEMENT  IN  EXCHANGE.      II9 

be  settled,  and  all  balances  paid,  without  the  use  of  any 
money.  This  is  called  a  transfer  of  credit,  and,  as  we  shall 
see  hereafter,  is  a  very  large  element  in  the  mechanism  of 
exchange.  The  above  is  a  very  simple  instance,  and  yet 
contains  all  that  is  essential  to  a  system  which  is  variously 
implicated,  and  extends  to  transactions  involving  the  value 
of  many  millions  of  dollars. 

3.  The  following  definition  of  credit  is  given  by  McCul- 
loch  :  "  Credit  is  the  trust  or  confidence  placed  by  one  in- 
dividual in  another  when  he  assigns  him  money  or  other 
property  in  loan,  or  without  stipulating  for  immediate  pay- 
ment. The  party  who  lends  is  said  to  give  credit ;  the  party 
who  borrows,  to  obtain  credit."  The  importance  of  credit, 
both  as  an  instrument  of  exchange  and  as  an  aid  to  produc- 
tion, is  very  great.  In  order  to  production,  as  we  have  seen, 
a  man  must  be  able  and  willing  to  work,  and  there  must  be 
capital  with  which  in  some  way  he  can  unite  his  labor.  The 
constituents  of  capital  he  must  in  very  many  instances  bor- 
row of  some  capitalist  before  he  can  work  to  any  advantage 
in  producing  means  of  his  own  to  exchange  for  the  capital 
needed. 

4.  The  advantages  of  credit  may  be  briefly  presented  as 
follows  :  — 

I.   To  the  capitalist. 

(a)  Without  a  credit-system,  each  capitalist  must  keep 
all  his  means  in  his  owti  hands,  and  thus  incur  the  liability 
to  extend  his  business  beyond  his  ability  to  manage  it.  The 
limits  of  executive  talent  vary  greatly  in  various  men.  Some 
can  conduct  the  most  extensive  and  complicated  enterprises, 
involving  perhaps  millions  of  capital.  Some,  while  able  to 
earn  fair  or  even  large  wages  by  their  labor  and  skill,  are  yet 
incompetent  to  carry  on  even  a  small  business  of  a  simple 
character.     Bet\veen  these  two  extremes  lie  all  the  grades 


120  POLITICAL   ECONOMY. 

of  business  ability.  Hence  there  will  always  be  men  with 
more  capital  than  they  can  manage,  while  others  will  be 
competent  to  manage  more  capital  than  they  own.  It  will, 
then,  be  for  the  interest  of  the  former  to  become  the  credit- 
ors of  the  latter,  if  they  can  do  so  with  good  security. 

(/;)  Again,  there  are  those  who  have  considerable  incomes, 
the  surplus  of  which,  above  their  expenditures,  it  is  impossible 
to  invest  in  their  own  business.  Lawyers,  physicians,  literary 
men,  teachers,  artists,  and  many  others  are  included  in  this 
class.  Widows  and  children  are  often  left  with  property 
sufficient  for  their  support,  if  it  can  be  properly  invested ; 
but  they  cannot  usually  carry  on  business  themselves.  If 
their  property  can  be  safely  loaned,  both  they  and  the  com- 
munity will  find  advantage  in  such  a  disposition  of  it. 

(r)  Finally,  as  men  advance  in  years,  they  are  less  capable 
of  superintending  an  extensive  business.  It  is  natural  that 
there  should  be  a  contraction,  rather  than  an  expansion,  of 
their  enterprises.  In  some  cases  it  is  necessary  for  them  to 
altogether  retire.  In  either  case  it  would  involve  the  with- 
drawal of  a  part  or  a  whole  of  their  capital,  which  must  lie 
idle  or  be  loaned. 

2.  To  the  non-capitalist. 

(rt-)  A  man  works  with  more  interest,  vigor,  and  success, 
where  the  enterprise  is  his  own,  than  where  it  belongs  to 
another.  Then,  too,  he  can  adapt  himself  to  his  work  as 
to  time  and  circumstances,  as  he  could  not  were  he  a  mere 
journeyman.  He  will  thus  be  likely  to  greatly  enhance  his 
production,  both  in  quantity  and  quality. 

(/^)  Moreover,  as  we  have  seen,  there  are  some  men  who 
have  peculiar  abilities  of  a  high  order  for  organization  and 
management ;  which  abilities,  without  borrowed  capital,  can 
find  no  good  opportunity  for  exercise,  and  will  thus  be  lost 
both  to  their  possessors  and  to  the  community. 


THE   CREDIT  ELEMENT  IN  EXCHANGE.      121 

{c)  If  each  retains  his  ovvn  property  as  capital,  there  will 
be  accumulations  in  a  few  hands  and  places  ;  whereas,  with  a 
wise  credit-system,  capital  will  be  diffused  more  widely,  and 
will  bring  the  producer  and  consumer,  as  the  capitalist  and 
the  laborer,  into  easier  relations  to  each  other. 

5.  It  thus  clearly  appears,  that,  by  a  judicious  system  of 
credit,  the  capital  of  a  community  gets  more  fully  combined 
with  labor,  and  production  is  palpably  increased.  It  is  to 
be  recollected,  that  what  is  ostensibly  borrowed  and  lent  is 
motley,  but  really  it  is  material  and  implements.  Thus  a  man 
desires  to  set  up  in  the  business  of  a  blacksmith.  He  has 
simply  the  ability  to  labor,  and  the  skill  and  intelligence, 
that  fit  him  for  his  vocation.  But  he  has  no  shop,  no  tools, 
no  coal,  no  iron.  If  some  one  would  lend  him  these,  with 
the  understanding  that  he  might  pay  for  them  under  stipu- 
lated conditions,  and  thus  become  their  owner,  it  would 
answer  all  his  purposes.  Possibly  in  some  cases  this  would 
be  done ;  but  generally  he  would  borrow  the  money  with 
which  to  purchase  these. 

These  are  only  some  of  the  forms  and  advantages  of  credit. 
It  must  exist  to  a  greater  or  less  extent  in  nearly  all  trans- 
actions of  men  with  men.  The  employer  must  either  trust 
his  workmen  with  pay  in  advance,  or  they  must  trust  him 
till  the  work  is  done.  In  countless  ways  it  ramifies  through 
society,  and  aids  in  all  the  affairs  of  commerce  as  well  as  in 
the  production  of  wealth.  Without  it,  society  could  scarcely 
advance  beyond  the  condition  of  barbarism.  It  is  the  essen- 
tial element  in  all  the  great  enterprises  characterized  by  the 
combination  and  division  of  labor.  In  commerce,  as  in  reli- 
gion, "  we  walk  by  faith,  not  by  sight."  But  we  have  to  do 
with  it  here  chiefly  as  supplementing  the  precious  metals  in 
the  function  of  an  instrument  of  exchange.  As  we  shall  see, 
credit,  in  one  form  and  another,  constitutes  the  larger  part 
of  this  instrument. 


CHAPTER  X. 

BANKS  AND   BANKING. 

1.  Banks  are  institutions  which  serve  to  abbreviate  and 
faciUtate  the  business  of  exchange,  by  extending  and  render- 
ing available  the  credit  of  the  community.  Of  general 
banking  business  in  ancient  times,  we  have  only  meagre  ac- 
counts. It  is  more  than  probable  that  something  answering 
to  our  present  system  existed  in  several  nations  previous 
to  the  Christian  era.  In  modern  times,  among  the  earliest 
financial  institutions  of  which  we  have  any  account,  were 
the  banks  of  Venice  and  Genoa,  chartered,  the  former  in  the 
twelfth  and  the  latter  in  the  fourteenth  century,  and  con- 
tinuing in  operation  till  the  beginning  of  the  present  century. 
The  banks  of  Amsterdam  and  Mamljurg  began  somewhat 
later,  and  are  still  in  existence,  having  had  a  vast  influence 
in  the  financial  history  of  Europe.  The  Bank  of  England 
was  created  about  1692,  and  has  been  for  more  than  a  hun- 
dred years  the  most  powerful  factor  in  the  commercial  world. 
All  of  these  institutions  have  been  closely  related  to  the 
governments  of  their  respective  countries.  A  multitude  of 
minor  banks  have  sprung  up  within  the  last  two  centuries, 
some  of  them  of  scarcely  less  note  than  those  just  mentioned. 
Banking  is  one  of  the  most  important  occupations  of  our 
modern  civilization. 

2.  The  beginning  of  the  modern  system  was  probably 

122 


BANKS  AND   BANKTNG.  1 23 

fiomclhing  in  this  way  :  In  commnnitics  where  there  was  a 
considerable  variety  of  industry,  and  there  were  consecjuently 
many  exchanges,  there  would  necessarily  be  greater  or  small- 
er accumulations  of  money  in  the  hands  of  intlividuals.  It 
would  be  found  inconvenient,  hazardous,  or  expensive  to 
keep  these  in  one's  own  possession.  A  strong-box,  perpetual 
watching,  and  manifold  precautions  might  secure  safety, 
liut  it  would  naturally  occur  to  practical  business  men,  that 
one  strongly  ])rotected  place,  under  the  care  of  a  competent 
])erson  who  should  devote  himself  to  the  charge  of  the  treas- 
ures of  his  employers,  would  be,  at  least,  less  expensive  than 
each  individual's  custody  of  his  own  valuables  ;  and  that  it 
niigiit  be  vastly  cheaper,  as  well  as  more  effective,  for  the 
whole  community  of  business  men  to  combine,  and  assign 
the  guardianship  to  one  man,  than  for  each  to  exercise  it  on 
his  own  account.  Hence  would  result  a  building,  centrally 
U)(  attil,  with  strong  vaults,  and  other  safeguards  and  secur- 
ities, where  each  person  having  surplus  funds  would  deposit 
tlu-ni  for  safe  keeping. 

It  would  not  take  long  to  learn  that  only  a  part  of  the 
money  deposited  would  be  likely  to  be  withdrawn  at  one 
time.  Hence  a  portion  might  be  loaned  temporarily.  Ex- 
perience and  observation  would  furnish  data  for  calculating 
how  large  this  portion  might  be,  and  how  much  it  would  be 
necessary  to  keep  constantly  on  hand.  The  part  thus  loaned 
on  proper  security,  and  made  returnable  at  short  intervals, 
would  be  i)aying  interest ;  which  would  be  a  compensation 
for  the  care  of  the  money,  and  also  afford  a  profit.  Such  a 
disposition  of  the  funds  would  also  be  an  advantage  to  the 
community,  by  keeping  its  capital  more  fully  employed.  An 
arrangement  of  this  kind  would  have  all  the  elements  of  a 
bank  of  deposit. 

3.  ^^'e  see  that  credit  appears  as  an  important  factor  in 


124  POLITICAL   ECONOMY. 

this  department  of  banking.  It  has  a  wider  scope  even  here 
than  has  been  indicated.  The  primary  and  natural  process 
would  be  such,  that,  whenever  a  man  had  money  to  deposit, 
he  would  carry  it  to  the  bank,  and  the  sum  would  be  placed 
to  his  credit.  Whenever  he  desired  to  use  a  portion  of  it, 
he  would  draw  such  a  portion,  and  be  debited  with  so  much. 
But  an  abridgment  of  this  process  would  come  early  into 
use.  The  depositor,  having  a  debt  to  pay,  instead  of  going 
to  the  bank,  and  drawing  the  money,  and  then  paying  it  over 
to  his  creditor,  would  give  the  latter  an  order  on  the  bank. 
The  receiver  might  do  one  of  three  things  with  the  order. 
He  might  draw  the  money ;  or  he  might  deposit  the  order 
as  so  much  cash,  in  which  latter  case  there  would  be  a  trans- 
fer of  credit  from  the  account  of  the  drawer  of  the  order  to 
that  of  its  receiver ;  or,  without  going  to  the  bank  at  all,  he 
might  hand  the  order  over,  as  so  much  cash,  to  some  one 
with  whom  he  has  dealing ;  and  it  might  pass  through  several 
hands,  paying  as  many  debts,  before  finding  its  way  to  the 
bank,  and  even  then  being  entered,  up  to  the  last  holder's 
credit,  without  the  use  of  any  money.  Usually,  however,  the 
order  is  carried  to  the  bank  by  the  party  first  receiving  it, 
and  is  either  paid  in  cash  or  placed  to  his  credit.  Such  is 
the  process  of  trajtsfer  of  credits  by  checks.  Much  the  larger 
proportion  of  the  business  of  the  banks  and  their  customers 
in  some  communities  is  done  in  this  way.  Many  wholesale 
firms  in  the  cities  receive  most  of  their  payments  for  goods 
in  drafts ;  they  make  their  payments  in  the  same  way  :  so 
that  comparatively  little  cash  is  used  by  them,  though  their 
transactions  amount  to  thousands  of  dollars  a  week.  Credit 
is  thus  made  to  greatly  supplement  money  as  an  instrument 
of  exchange.  There  is  a  still  further  development  of  this 
substituted  agency,  in  the  method  of  loan  and  deposit,  which 
will  be  set  forth  hereafter. 


BANKS  AND  BANKING.  1 25 

4.  So  far  we  have  been  considering  the  me-thod  of  pay- 
ment by  transfer  of  credit,  when  there  is  only  one  bank  in 
the  community.  But  there  may  be  more  than  one,  and 
different  individuals  may  be  doing  business  with  different 
banks.  Let  us  see  how  payments  may  be  made  without 
money  in  such  cases.  Suppose,  in  a  large  village,  A  makes 
his  deposits  in  one  bank,  and  B  in  another.  A  receives  in 
payment  of  a  debt,  or  in  exchange  for  goods,  a  check  on 
the  second  bank.  Instead  of  drawing  the  money  from  that 
bank,  he  puts  it,  with  other  drafts  and  with  cash,  in  the  first 
bank,  where  he  makes  his  deposits  ;  and  the  whole  is  cred- 
ited to  him  as  so  much  money.  B  may  also  receive  a  check 
on  the  first  bank,  in  the  way  of  exchange  :  this  check  he  will 
deposit  in  the  second  bank,  where  he  does  business.  What 
these  men  do,  a  score  or  a  hundred  others  may  do.  Thus 
there  may  be  in  each  of  these  banks,  or  in  each  of  half  a 
dozen  if  there  be  so  many,  a  number  of  checks  upon  each 
or  all  of  the  others.  At  the  end  of  the  day  or  of  the  week, 
each  bank  settles  with  every  other,  exchanging  checks,  and 
paying  balances  in  money,  or  passing  them  over  to  a  new 
account.  Usually  this  balance  is  comparatively  small,  so 
that  here  again  is  an  abridgment  of  the  use  of  money  by 
credit  on  a  large  scale. 

5.  In  large  cities,  there  are  institutions  called  clearing- 
houses, for  facilitating  the  settlement  of  checks  and  drafts 
between  banks.  They  are  of  recent  origin,  but  have  already 
grown  to  be  among  the  most  important  of  financial  agencies. 
Only  a  brief  description  of  them  can  be  given. 

The  clearing-house  is  a  room  where  the  several  banks  of 
a  city  send  their  representatives  with  the  checks  and  drafts 
which  each  has  on  any  of  the  others.  We  have  already 
seen  how  one  bank  comes  into  possession  of  checks  drawn 
on  another.     There  are  certain  officers  and  employees  of 


126  POLITICAL   ECONOMY. 

the  clearing-house,  who  keep  a  record  of  the  accounts 
between  the  several  banks ;  and  the  work  is  thoroughly 
systematized.  Each  bank,  before  sending  in  its  checks, 
assorts  them  in  several  parcels  corresponding  to  the  banks 
upon  which  they  are  drawn.  On  arriving  at  the  clearing- 
house, the  clerk  presents  them  respectively  to  the  several 
clerks  of  the  clearing-banks.  These  checks  have  already 
been  entered  on  the  "  out-clearing  book ;  "  that  is,  debited 
to  the  several  banks  on  which  they  are  drawn.  Each  bank- 
representative,  on  receiving  the  checks  against  his  own  bank, 
has  them  entered  in  the  "  in-clearing  book."  Opportunity 
is  given  for  each  bank  to  reject  any  checks  which  it  does 
not  see  fit  to  pay ;  and,  after  all  rectifications  are  made,  each 
clerk  reckons  up  the  claims  against  his  bank,  and  compares 
the  amount  with  that  in  the  out-clearing  book,  which  indi- 
cates what  is  due  from  the  other  banks  to  it.  The  differ- 
ence is  the  balance  which  this  particular  bank  is  to  pay  or 
receive,  as  the  case  may  be.  I'hese  balances  are  reported 
to  the  officers  of  the  clearing-house,  and  invested  in  a  kind 
of  balance-sheet.  The  two  sides  should  exactly  balance, 
since  whatever  is  received  by  one  bank  must  have  been  paid 
by  another.  Of  late,  in  London  it  has  been  the  custom  to 
pay  the  balances,  not  in  cash,  but  in  checks  on  the  Bank  of 
England,  where  each  City  bank  ordinarily  has  an  account. 
Thus  transactions  to  the  amount  of  $100,000,000  a  day  are 
settled  without  the  intervention  of  any  money  at  all.  In  the 
New- York  clearing-house  there  have  been  exchanges  effected 
in  a  single  year  to  the  amount  of  nearly  $34,000,000,000, 
with  cash  balances  of  less  than  $1,500,000,000,  or  less  than 
four  per  cent.  That  is,  four  dollars  are  made  to  do  the 
work,  which,  without  these  agencies,  it  would  require  one 
hundred  to  accomplish.' 

'  See  American  Cyclopaedia,  article  "  Bank  ;  "  also,  Jevons's  Money  and  the  Mech 
anism  of  Exchange. 


BANKS  AND  BANKING.  12/ 

6.  It  is  both  curious  and  interesting  to  trace  the  process  of 
exchange  between  remote  parts  of  the  same  country  or  be- 
tween different  countries,  and  observe  how  large  a  proportion 
of  it  is  effected  by  transfers  of  credit.  Thus  a  man  m  Mil- 
waukee consigns  a  thousand  bushels  of  wheat  to  a  firm  in 
New  York.  He  draws  on  that  firm  for  one  thousand  dollars 
at  ten  days'  sight.  This  is  done,  say,  through  the  First 
National  Bank  of  Milwaukee,  which  sends  the  draft  to  its 
correspondent  bank  in  New  York,  say  the  Columbian  Bank. 
The  consignee  pays  the  draft  by  a  check  on  the  Union 
Bank.  The  check  finds  its  way  to  the  clearing-house,  where 
it  is  met  by  counter-checks,  as  we  have  seen ;  but  the 
amount  is  credited  by  the  Columbian  Bank  to  the  First 
National  in  Milwaukee,  which  in  turn  credits  the  same,  less 
exchange,  to  the  consignor  of  the  wheat. 

In  the  mean  time  another  man  in  Milwaukee  has  ordered 
five  hundred  dollars'  worth  of  carpeting  from  New  York  ;  and 
another,  three  hundred  dollars'  worth  of  boots  and  shoes ; 
and  still  another,  two  hundred  dollars'  worth  of  cotton  cloth. 
If  these  three  persons  all  do  business  at  the  First  National 
Bank  of  Milwaukee,  they  will,  when  their  bills  become  due, 
deposit  the  amount  of  the  same  in  this  bank,  which  will  give 
them  drafts  on  the  Columbian  Bank  of  New  York,  and  these 
will  be  sent  to  the  parties  in  New  York,  to  whom  the  bills 
are  due ;  and  the  latter  will  deposit  them  in  the  banks 
where  they  do  business.  The  drafts  will  come  in  due  time 
through  the  clearing-house  to  the  Columbian  Bank,  which 
will  debit  the  several  amounts  to  the  First  National  in  Mil- 
waukee. Now  there  will  be  in  the  same  bank  a  credit  of  a 
thousand  dollars  on  account  of  the  wheat  received  from 
Milwaukee,  and  a  debit  of  a  thousand  dollars  for  the  goods 
sent  from  New  York.  One  amount  offsets  the  other;  and 
the  wheat  pays  for  the  carpeting,  cotton  cloth,  and  boots 
and  shoes. 


128  POLITICAL   ECONOMY. 

It  is  very  likely  that  the  different  buyers  and  sellers  in 
Milwaukee  may  do  business  in  different  banks,  each  of  which 
has  a  different  correspondent  bank  in  New  York.  The  pro- 
cess in  this  case  is  more  complicated  :  but  even  so,  a  very 
large  proportion  of  these  drafts  and  bills  are  met  by  other 
paper  of  the  same  kind,  in  some  of  the  money-agencies 
East  or  West ;  so  that,  for  the  most  part,  the  Western  prod- 
uct pays  for  the  Eastern  merchandise.  Of  course  more  or 
less  money  passes  back  and  forth,  when  the  bills  of  exchange 
fail  to  meet ;  but  the  actual  amount  of  cash  used  is  very 
small  in  comparison  with  that  of  the  business  done.  The 
same  general  features  of  the  system  of  exchange  by  means 
of  credit  exist  in  international  trade. 

7.  There  are  four  kinds  of  banks,  which  it  was  my  purpose 
to  describe  ;  namely,  banks  of  deposit,  savings-banks,  banks 
of  discount,  and  banks  of  issue  or  circulation.  Sometimes 
these  are  all  combined  in  one ;  and  generally,  in  tliis 
country,  the  functions  of  three  of  them  are  performed  by 
one  institution.  I  have  already  described  banks  of  deposit. 
Before  going  on  to  consider  the  banks  of  discount  and  cir- 
culation, which  are  closely  connected  with  the  former,  let  us 
see  what  is  meant  by  a  savings  bank. 

A  savings  bank  is  an  institution  in  which  small  sums  of 
money  are  deposited  from  time  to  time,  as  they  accumulate 
in  the  hands  of  persons  of  small  incomes  and  moderate 
earnings.  The  depositors  are  credited  with  these  sums,  and 
receive  a  certificate,  usually  in  the  form  of  a  deposit-book. 
They  are  allowed  a  moderate  amount  of  interest  in  any 
case,  and  an  additional  amount  contingently.  The  bank 
loans  out  the  money  thus  deposited,  to  trustworthy  persons, 
in  large  sums,  the  rate  of  interest  being  somewhat  higher 
than  that  regularly  paid  to  the  depositors.  The  benefit  of 
such  an  institution  is  twofold.     In  the  first  place,  there  are 


BANKS  AND  BANKING.  1 29 

many  persons  who  have  moderate  sums  of  money,  or  property 
convertible  into  money,  which  they  desire  should  be  earning 
something  in  some  safe  place.  The  amount,  by  itself,  is  too 
small  to  be  loaned  to  advantage.  Such  persons  are  not 
likely  to  know  how,  even  if  the  sums  at  their  disposal  were 
sufficient,  to  find  the  best  investment,  or  to  determine  con- 
cerning the  security  offered.  But  put  in  the  hands  of  men 
who  make  this  their  business  under  rules  devised  by  the 
best  financial  talent  of  the  community,  and  who  can  com- 
bine these  small  sums,  and  invest  them  to  the  best  advantage, 
it  is  made  both  safe  and  profitable  for  small  capitalists. 

In  the  second  place,  there  are  many  who  wish  to  unite 
their  labor  and  skill  with  capital  in  some  productive  enter- 
prise, and,  having  no  capital  of  their  own,  desire  to  borrow. 
They  do  not  always  know  the  persons  who  have  money  to 
loan.  The  savings  bank  gives  them  an  advantage  which  they 
would  not  other^vise  have.  It  is  thus  a  double  benefit :  first, 
to  those  who  have  some  surplus,  but  would  be  unable  to  loan 
it  to  advantage ;  and,  secondly,  to  those  who  are  in  want  of 
capital,  but  would  not  know  where  to  find  it. 

8.  Banks  of  discount  and  loan  are  frequently  combined 
with  banks  of  deposit,  though  not  necessarily  so.  They  are 
usually  constituted  as  follows  :  A  charter  from  the  Government 
is  secured,  reciting  the  privileges  of  the  institution,  and  speci- 
fying the  conditions  to  which  it  must  be  subject,  its  respon- 
sibilities, and  the  amount  of  capital  required.  This  capital 
is  divided  into  a  certain  number  of  shares.  When  the  char- 
ter is  secured,  the  books  are  opened  for  subscribers  to  the 
stock,  of  which  some  take  more  and  some  fewer  shares. 
Each  shareholder  has  a  voice  in  the  choice  of  directors,  in 
proportion  to  the  number  of  shares  held  by  him.  When 
the  bank  is  organized,  each  stockholder  pays  in  the  amount 
subscribed  by  him.  Under  a  specie-basis  system,  this  is  paid 
in  silver  and  gold. 


130  POLITICAL   ECONOMY, 

The  principal  functions  of  such  a  bank  are  exchange,  dis- 
count, and  loaning ;  all,  as  will  be  seen,  being  devices  for 
systematizing  and  utilizing  the  credit  of  the  community.  Of 
the  character  of  exchange,  we  already  have  some  notion. 
Certain  banks  in  different  countries,  or  in  remote  parts  of 
the  same  country,  are  in  correspondence,  and  have  accounts 
with  one  another.  If  a  person  in  the  vicinity  of  one  of  these 
banks  wishes  to  pay  a  bill  due  in  some  distant  place,  he  goes 
to  the  bank  near  him,  and  purchases  a  draft  on  some  bank 
in  a  large  central  city,  with  which  the  local  bank  is  in  corre- 
spondence. This  draft  is  sent  to  the  creditor,  who  will 
doubtless  deposit  it  in  the  bank  with  which  he  does  business, 
where  it  will  be  paid,  or  its  amount  credited  to  him.  It  will 
sooner  or  later  find  its  way,  through  other  banks  and  the 
clearing-house,  to  the  bank  upon  which  it  is  drawn.  This  is 
the  simple  form  and  operation  of  a  bill  of  exchange,  but  the 
process  is  often  much  more  complicated.  By  reason  of  the 
correspondence  of  the  country  banks  with  those  of  the  great 
commercial  capitals,  and  of  the  latter  with  one  another,  a 
man  in  Mississippi  may  pay  a  debt  in  Ohio  by  a  draft  on 
New  York ;  and  a  debt  in  Brussels  or  Geneva  may  be  paid 
by  a  bill  of  exchange  on  London  or  Paris. 

A  partial  notion  of  discount  and  loaning  may  be  gathered 
from  the  following  illustrations.  When  a  wholesale  merchant 
sells  a  quantity  of  goods  to  a  customer,  he  may  make  out  a 
bill  payable  in  thirty,  sixty,  or  ninety  days,  which  the  cus- 
tomer accepts,  and  thus  binds  himself  to  pay  at  the  time 
stipulated.  This  bill,  indorsed  by  himself,  the  wholesale 
merchant  deposits  in  the  bank  with  which  he  does  business, 
and  is  credited  with  the  amount  of  the  bill,  less  interest  for 
the  time  it  is  to  run.  A  bill  thus  disposed  of  is  said  to  be 
discounted.  Sometimes  a  note  is  given  by  one  person,  and 
indorsed  by  another,  and  offered  at  the  bank.     If  accepted, 


BANKS  AND  BANKING.  I3I 

the  amount  is  either  paid  over  in  money,  or  placed  to  the 
credit  of  the  borrower.  The  interest  is  either  paid  when  the 
note  becomes  due,  or  is  deducted  from  the  amount  loaned 
in  advance,  usually  the  latter ;  and  thus  the  term  discount  is 
used  with  reference  to  both  kinds  of  transactions. 

9.  Before  indicating  further  the  operation  of  a  bank  of 
discount,  it  is  desirable,  since  the  two  are  ordinarily  united, 
to  describe  a  bank  of  issue  or  circulation.  We  have  seen 
that  the  stock  or  capital  of  a  bank,  as  banking  is  usually 
conducted  on  a  specie  basis,  is  supposed  to  consist  of  me- 
tallic coin.  But  as  this  would  be  inconvenient  to  carry 
about  in  large  amounts,  and  as  it  is  subject  to  much  risk,  the 
bank,  instead  of  loaning  its  coin,  loans  its  own  notes,  paya- 
ble in  specie  on  demand.  As  only  a  few  persons  would  pre- 
fer specie  to  paper,  as  long  as  the  latter  will  command  the 
specie,  the  banks  usually  keep  on  hand  only  a  certain  pro- 
portion of  the  capital  for  the  redemption  of  the  notes,  even 
though  the  notes  in  circulation  call  for  an  amount  equal  to 
the  whole  stock  of  the  bank.  The  remainder  may  be  so 
invested  or  loaned  as  to  be  earning  a  profit  for  its  owners. 
That  this  usage  has  been  sometimes  grossly  abused,  is  true ; 
and  in  some  parts  of  our  country  it  has  made  banking  a 
fraud,  and  a  farce  of  the  most  disastrous  character.  A  bank 
constituted  as  above  indicated,  and  combining  the  three 
functions  named,  may  loan  and  draw  interest  on  its  loans  in 
three  ways  :  (a)  it  may  loan  the  larger  part  of  its  capital ; 
(<^)  it  may  loan  a  considerable  proportion  of  its  deposits ; 
(^)  it  may  loan  its  own  promises  to  pay,  to  the  extent  of 
half  or  two-thirds  of  its  capital. 

10.  It  is  evident  that  banks  deal  not  merely  in  money, 
but  also  in  debts  and  credits,  and  in  these  latter  to  a  much 
greater  extent  than  in  the  former.  A  litde  further  examina- 
tion will  make  this  clear.     Sir  John  Lubbock,  a  noted  Eng- 


132  POLITICAL   ECONOMY. 

lish  financier,  gives  an  analysis  of  a  sum  of  ;^i 9,000,000, 
paid  into  his  banking-liouse  in  the  city  of  London.  It  was 
composed  of — 

Checks  and  bills    ......        ;^  18,395,00x3 

Bank-notes 487,000 

Coin       .        • 118,000 

;^  1 9,000,000' 

Here  it  will  be  seen  that  only  a  little  more  than  three  per 
cent  of  the  transactions  of  the  banJc  involved  the  use  of  any 
kind  of  money,  and  only  one-fifth  of  that  money  was  coin. 
In  an  ordinary  country  bank,  or  even  in  a  bank  of  almost 
any  city  of  moderate  size,  the  proportion  of  money  used  will 
be  considerably  greater  than  this ;  but,  in  any  case,  it  will 
constitute  only  a  small  part  of  the  business. 

It  is  not  to  be  inferred  that  banks  can  be  made  to  sub- 
stitute the  instrumentality  of  money  altogether.  They  con- 
stitute an  agency  through  which  wholesale  dealers,  capitalists, 
employers,  and  men  engaged  in  extensive  enterprises,  can 
manage  their  exchanges  with  comparatively  little  money. 
But  men  in  moderate  circumstances  —  small  farmers,  mechan- 
ics, and  inhabitants  of  sparsely  settled  regions  — ■.  must  make 
a  much  larger  proportion  of  their  exchanges  by  means  of 
money.  Hence  a  real  scarcity  of  money  may  be  a  far  greater 
misfortune  to  the  latter  classes  than  to  the  former. 

'  Jevons's  Money  and  Mechanism  of  Exchange. 


CHAPTER  XI. 

THE   PAPER   CURRENCY   OF    THE   UNITED   STATES. 

1.  The  system  of  banking  created  by  our  General  Govern- 
ment during  the  time  of  the  civil  war  differs  somewhat  from 
that  which  previously  existed,  and  which  has  been  already 
described.  In  the  first  place,  under  the  former  system  the 
banks  were  chartered  by  the  legislatures  of  their  respective 
States.  This  may  still  be  the  case  ;  but  the  General  Govern- 
ment now  imposes  on  the  circulation  of  the  State  banks  a 
heavy  tax  from  which  that  of  the  National  banks  is  exempt. 
The  result  has  been  what  it  was  intended  to  be ;  namely,  to 
discourage  all  circulation  except  that  of  the  National  banks  or 
those  chartered  by  the  General  Government. 

In  the  second  place,  all  the  notes  of  the  National  banks  are 
guaranteed,  as  to  their  ultimate  redemption,  by  the  Govern- 
ment, and  yet  not  at  its  risk.  Every  banking  association 
must,  at  its  organization,  deliver  to  the  United-States  treas- 
urer interest-bearing  bonds  of  the  Nation,  ec^ual  in  value  to 
two-thirds  of  the  capital.  It  is  then  furnished  by  the  comp- 
troller of  the  currency  with  circulating  notes  of  various 
denominations,  in  blank,  equal  in  amount  to  ninety  per  cent 
of  the  current  market-value  of  the  bonds  deposited,  but  not 
exceeding  the  par  value  of  such  bonds.  In  any  case  of  the 
failure  of  the  bank,  there  is  no  risk  of  loss  to  the  holders  of 
its  notes,  as  they  are  good  for  the  face  of  them  at  the  United- 

133 


134  POLITICAL   ECONOMY, 

States  Treasury.  The  Treasury  also  incurs  no  risk,  as  it  has 
in  its  possession  securities  of  the  bank  to  something  more 
than  the  extent  of  the  whole  circulation,  in  the  form  of 
United-States  bonds.  The  bank  loses  nothing  by  depositing 
these  securities,  since  the  Government  is  paying  the  interest 
on  them. 

It  is  this  feature,  with  one  other  soon  to  be  mentioned, 
which  gives  the  notes  of  these  banks  the  character  of  a 
truly  national  currency.  The  bills  of  a  bank  in  Minnesota 
or  Texas  are  just  as  acceptable  in  New  York  or  in  Maine  as 
the  bills  of  the  banks  of  the  latter  States.  Under  the  old 
system,  a  bank-note  in  most  of  tJie  States  could  hardly  cir- 
culate out  of  the  vicinity  of  the  place  of  its  issue.  This  was 
the  source  of  endless  annoyance  to  a  traveller,  and  frequently 
of  expense  by  way  of  exchange. 

In  the  third  place,  these  National-bank  notes  are  a  legal 
tender  in  the  payment  of  all  dues  to  the  United  States,  except 
import  duties ;  and  also  for  all  dues  from  the  United  States, 
except  interest  on  the  public  debt.  But  they  are  not  a  legal 
tender  for  private  dues. 

Again,  the  National  banks  are  required  to  keep  on  hand, 
for  the  redemption  of  their  notes,  a  certain  proportion  of 
"lawful  money."  This  proportion  differs  in  different  places. 
Sixteen  of  the  principal  cities  are  designated,  in  which  it  is 
fixed  at  twenty-five  per  cent.  Elsewhere  it  is  fifteen  per 
cent. 

I  have  given  the  main  features  of  the  National-bank  system 
as  distinguished  from  that  of  State  banks  which  existed  pre- 
vious to  the  civil  war.  That  the  former  is  a  very  great 
improvement  on  the  latter,  there  can  be  no  question.  That 
it  has  its  imperfections,  is  undoubtedly  true. 

2.  Besides  the  National-bank  notes,  Government  notes 
have,  for  something  over  twenty  years,  formed  a  large  part  of 


PAPER   CURRENCY  OF   THE    UNITED  STATES.      1 35 

the  instrument  of  exchange.  The  "  greenback,"  popularly 
so  called  from  the  color  of  the  ink  with  which  the  back  is 
printed,  is  a  promissory  note  of  the  United-States  Govern- 
ment, drawing  no  interest,  and  made  by  law  a  legal  tender  for 
all  dues  except  duties  on  imports  and  interest  on  the  public 
debt.  These  notes  began  to  be  issued  early  in  the  time  of 
the  civil  war.  The  national  treasury  was  empty,  the  banks 
had  suspended  specie  payment,  industry  everj^vhere  was 
paralyzed  ;  immense  sums  of  money  were  needed  to  supply 
the  implements  and  munitions  of  war,  and  the  sustenance, 
clothing,  and  equipment  of  the  soldiers ;  and  it  was  impos- 
sible instantly  to  effect  a  loan,  such  as  would  enable  the 
Government  to  meet  the  demands  upon  it.  It  was  a  des- 
perate emergency,  and  required  bold  and  decisive,  if  not 
desperate,  action.  It  was  not  without  precedent  for  a  Gov- 
ernment to  issue  its  own  promises  to  pay,  though  with  the 
understanding  that  the  fuliilment  of  the  promise  must  be 
indefinitely  postponed,  and  to  make  these  a  legal  tender 
constituting  them  a  part  of  the  "  lawful  money "  of  the 
nation.  They  became,  and  still  remain,  a  part  of  the  debt 
incurred  by  the  war. 

The  immediate  effect  of  the  measure  was  most  beneficial. 
It  not  only  furnished  funds  for  carrying  on  the  war,  and  was 
thus  perhaps  the  salvation  of  the  nation  ;  but  it  provided  a 
circulating  medium  and  instnunent  of  exchange,  which  set 
in  motion  at  once  the  commerce  and  industry  which  had 
been  languishing,  and  produced  wholesome  activity  where 
previously  there  had  been  general  stagnation.  In  connection 
with  other  financial  measures  adopted  about  the  same  time, 
it  became  the  occasion  of  remarkably  prosperous  conditions, 
in  spite  of  the  derangements  incident  to  the  war.  It  has 
been  said  that  these  conditions  were  largely  fictitious,  and 
that  the  revulsion  and  protracted  depression  of  the  next 


136  POLITICAL   ECONOMY. 

decade  were  both  the  proof  of  this  and  the  natural  conse- 
quence of  such  a  measure.  But  the  fact  that  ahnost  the 
whole  commercial  world,  except  France,  suffered  equally 
severe  depression  at  the  same  time,  would  seem  to  militate 
against  this  hypothesis.  It  is  remarkable,  too,  that  France 
had  a  currency,  and  was  under  financial  conditions,  similar 
to  our  own. 

3.  The  advantages  of  a  paper  currency  are  numerous  and 
important,  but  they  may  be  grouped  as  follows  :  — 

1.  Paper  is  more  convenient  than  specie  for  handling 
and  carrying.  A  hundred  dollars  in  silver,  or  a  thousand 
in  gold,  could  be  carried  about  the  person  with  neither  ease 
nor  safety. 

2.  The  wear  and  tear  of  specie  would  be  much  more 
costly  by  constant  use  than  that  of  paper. 

3.  It  forms*  a  supplementary  currency  which  is  of  vast 
advantage  to  a  community.  Were  all  the  exchanges  to  be 
made  through  the  medium  of  coin,  without  the  intervention 
of  credit  in  the  form  of  paper,  commerce  would  be  greatly 
impeded.  There  is  not  enough  gold  and  silver  in  the  com- 
mercial world  to  answer  this  purpose.  The  financial  history 
of  the  modern  world  shows  this.  Hence  the  necessity  of 
credit,  which,  in  civilized  nations,  performs  far  more  of  the 
functions  of  an  instrument  of  exchange  than  gold  and  silver. 
A  considerable  part  of  this  credit  element  consists  of  what 
we  have  called  paper  money. 

It  is  generally  acknowledged  that  the  first  two  advantages 
mentioned  above  constitute  valid  reasons  for  the  use  of 
paper  money.  But  the  third  is  rejected  by  a  certain  class, 
on  the  ground  that  bank-notes  should  never  be  used  to  sup- 
plement coin.  This  class  holds  that  only  so  much  paper 
money  should  be  issued  from  the  banks,  or  any  other  source, 
as  is  equivalent  in  the  amount  promised  to  the  amount  of 


PAPER   CURRENCY  OF   THE    UNITED  STATES.      1 37 

coin  actually  on  hand  by  the  issuer ;  so  that,  if  all  the  notes 
were  presented  at  one  time,  they  could  be  redeemed  at 
once.  This  would,  of  course,  make  the  bank-notes  of  no 
advantage  whatever  as  a  supplementary  currency.  It  is 
claimed,  on  the  other  hand,  that  these  notes  are  entirely 
safe  under  careful  regulations,  where  not  less  than  one-third 
as  much  coin  is  kept  on  hand  as  the  notes  called  for. 

The  evils  of  paper  money  are  found  chiefly  in  the  liability 
to  an  expansion  and  contraction  of  the  currency,  the  power 
of  which  is  largely  in  the  hands  of  the  managers  of  the 
banks,  or,  in  the  case  of  governmental  notes,  under  the  direc- 
tion of  the  national  legislature.  Such  fluctuations  are  pro- 
ductive of  serious  disasters  to  commerce,  and  to  all  the 
interests  of  industry. 


Book  Fourth 


DISTRIBUTION. 


CHAPTER  I. 

GENERAL  STATEMENT. 

1.  By  distribution  is  meant  the  determination  of  the  prO' 
portio7i  of  the  value  of  any  product  to  which  each  contribu- 
tor  to  that  product  is  entitled.  In  such  a  determination  many 
considerations  are  involved.  There  are  the  various  kinds 
of  labor,  such  as  physical  and  mental,  common  and  skilled, 
the  more  and  the  less  efficient ;  together  with  such  modi- 
fications of  these  as  are  implied  in  their  being  mingled  in 
different  proportions,  and  in  the  experience,  aptitude,  and 
culture  of  individuals. 

Let  us  take  some  one  product,  —  say  this  table,  —  and 
consider  the  number  of  laborers  and  the  variety  of  labor 
contributing  to  its  production.  Those  who  transformed  the 
lumber  and  other  materials  are  only  a  very  small  proportion 
of  these  contributors.  There  are  also  those  who  manufac- 
tured the  lumber,  those  who  cut  the  logs  out  of  which  it  was 
made,  and  those  who  hauled  them  to  the  mill ;  the  makers 
of  the  nails,  and  of  the  iron  from  which  the  nails  were  made  ; 
the  miners  who  got  out  the  ore,  and  the  transporters  of  the 
same  ;  the  painter,  the  producers  of  the  paint  and  the  oil,  and 
all  that  lies  back  of  this ;  and,  in  addition,  the  maker  of  all 
the  tools  and  machinery  used  m  all  these  operations ;  and 
much  else  that  we  cannot  specify.     Evidently  the  three  or 

four  dollars,  at  which  the  completed  table  is  valued,  must  be 

141 


142  POLITICAL    ECOiVOMY. 

distributed  among,  perhaps,  t^vo  or  three  scores  of  persons 
who  have  had  a  hand,  directly  or  indirectly,  in  its  produc- 
tion. The  question  is,  How  shall  we  equitably  apportion  this 
amount  among  these  several  parties  ? 

2.  The  most  natural  answer  to  this  question  would 
undoubtedly  be,  that  each  individual  engaged  in  the  pro- 
duction of  a  valuable  commodity  is  entitled  to  an  exact 
equivalent  of  the  value  by  him  produced.  If  it  were  simply 
estimating  the  respective  shares  of  several  laborers  of  about 
equal  ability,  it  would  be  a  very  easy  matter.  If  it  related 
to  several  laborers  differing  only  in  physical  strength  and 
skill,  it  might  be  clearly  within  the  ordinary  powers  of  com- 
putation. The  problem  might  be  calculable,  even  if  we  had 
to  take  into  account  certain  differences  of  intellectual  com- 
petency ;  but  when  we  remember  that  not  only  are  all  these 
elements,  and  many  more  pertaining  to  personal  labor,  to 
enter  into  the  question  in  countless  complications,  but  that 
capital,  in  a  vast  variety  of  forms,  comes  into  co-operation 
with  all  productive  effort  everywhere,  then  the  situation  is 
seen  to  be  environed  with  many  and  great  difficulties. 

3.  The  following  is  the  general  division  of  the  subject :  — 

1.  Wages,  or  the  compensation  of  labor. 

2.  Profits,  or  the  compensation  of  employers  and  propri- 
etors. 

3.  Interest,  or  the  compensation  for  the  use  of  capital, 
reckoned  as  money. 

4.  Rent,  or  the  compensation  for  land. 

5.  Taxes,  or  the  compensation  for  the  services  of  the 
government. 

The  term  "  compensation  "  is  not  used  with  scientific  pre- 
cision, and  may  mislead.  It  is  simply  intended  to  signify  the 
shares  to  which  the  several  co-operating  parties  are  entitled 
by  reason  of  their  relations  to  the  product.     It  is  not  neces- 


GENERAL   STATEMENT.  1 43 

sary  to  suppose  that  these  different  kinds  of  compensation 
are  ahvays  distributed  to  as  many  different  parties.  For 
instance,  a  farmer,  especially  in  this  country,  may  own  his 
farm  free  from  debt.  What  might  otherwise  be  interest  and 
rent,  now  becomes  scarcely  distinguishable  from  profit.  He 
may  also  be  his  own  hired  man,  and  so  receive  the  wages 
which  he  would  othenvise  pay  to  another.  He  manages  and 
owns  his  stock  and  entire  capital ;  and  thus  all  the  product, 
except  the  share  due  the  government,  is  properly  taken  by 
himself. 


CHAPTER   II. 

WAGES  :    GENERAL  VIEW. 

1.  Though  wages  have  been  represented  as  the  compen- 
sation for  labor,  the  term  has,  in  ordinary  usage,  a  somewhat 
more  limited  signification.  It  indicates  that  which  is  paid 
to  those  who  labor  under  an  employer,  and  have  no  other 
interest  in  the  business  except  to  secure  steady  work  and 
satisfactory  remuneration.  It  has  also  a  still  narrower  mean- 
ing, as  being  the  reward  of  services  performed  by  the  day 
or  month,  as  distinguished  from  salaried  employees,  such  as 
clerks,  superintendents,  teachers,  and  clergymen ;  also,  as 
distinguished  from  those  whose  service  is  paid  in  the  form 
of  fees,  as  lawyers,  physicians ;  and  from  those  who  are  com- 
pensated by  commissions. 

2.  The  theory  of  labor  and  wages,  held  by  many  writers 
in  Great  Britain,  and  by  some  in  this  country,  is  that  of  a 
laboring-class,  who  furnish  the  labor,  and  who  are  paid  out 
of  what  is  called  a  wages-fund.  The  capital  of  the  com- 
munity is  regarded  as  a  real,  but  rather  indefinite  and 
gradually  increasing,  quantity  of  wealth.  It  is  supposed  to 
exist  in  the  four  forms  of  land,  material,  implements  and 
machinery,  and  the  wages-fund.  This  last  is  reckoned  as 
fixed  for  the  time,  and  devoted  to  the  payment  of  labor. 
The  problem  of  the  rate  of  wages  thus  involves  two  factors ; 

namely,  the  number  of   laborers,  and  the  amount  of  the 
144 


WAGES:    GENERAL    VIE IV.  1 45 

wages-fund.  The  former  is  the  divisor,  and  the  latter  the 
dividend ;  the  quotient  is  the  rate  of  wages  at  any  time  pos- 
sible. If  the  number  of  laborers  increase,  the  fund  remain- 
ing the  same,  wages  must  diminish.  If  the  fund  increases 
or  diminishes,  the  number  of  laborers  remaining  the  same, 
wages  increase  or  diminish  correspondingly.  Thus,  we  are 
told,  every  thing  is  determined  by  natural,  inflexible  laws ; 
and  no  matter  how  low  the  wages  may  be,  or  how  hard  the 
lot  of  the  laboring-man,  there  is  no  remedy. 

Now,  the  existence  of  natural  economical  laws  is  not  to 
be  doubted.  But  it  should  be  borne  in  mind,  that  these 
laws,  even  when  correctly  ascertained,  may  be  almost  infi- 
nitely varied  in  their  operation  by  various  forms  of  human 
influence.  Wiether,  in  this  case,  the  law  has  been  correctly 
ascertained,  we  shall  see  hereafter. 

3.  It  is  this  habit  of  regarding  laborers  as  a  class,  that 
affects  the  philosophy  of  some  of  even  the  most  philanthropic 
writers  on  this  subject.  There  is  nothing  in  the  nature  of 
the  case  that  necessitates  this.  In  the  Northern  States  of  this 
country,  among  the  native  American  population,  there  is, 
properly  speaking,  no  laboring-class.  A  large  proportion 
of  the  citizens  begin  life  on  their  own  account,  by  working 
for  wages.  Many  of  these  become  capitalists  in  a  small 
way,  by  saving  their  earnings,  and,  after  a  little,  begin  to 
carry  on  business  for  themselves.  To  a  great  extent  they 
are  clearly  independent,  even  while  acting  as  laborers ;  and 
it  is  not  uncommon  to  iind  a  hired  man  with  both  more 
means  and  more  ability  and  intelligence  than  his  employer. 
Into  the  mind  of  such  a  laborer,  there  never  comes  the 
thought  that  he  occupies  an  inferior  social  position.  He  is 
simply  in  the  relation  of  one  who  has  service  to  sell,  and  he 
stands  in  the  market  on  the  same  footing  as  the  farmer,  or 
the  manufacturer,  or  the  merchant,  who  offer  their  wares,  and 


146  POLITICAL   ECONOMY. 

invite  the  public  to  purchase.  It  is  true  that  this  condition 
is  not  universal  here.  There  is  an  occasional  tendency  to 
the  degradation  of  labor  through  the  ignorance  or  poverty 
of  the  laborer,  and  by  the  opportunities  furnished  to  the 
employer  to  take  advantage,  such  as  the  average  selfishness 
of  humanity  would  prompt  him  to  use. 

4.  But  even  on  the  theory  of  a  laboring-class,  there  must 
be  a  minimum  rate  of  wages  ;  that  is,  a  rate  below  which 
capital  itself  would  suffer  detriment.  Even  among  ordinary 
laborers,  the  lowest  wages  which  can  be  permanently  main- 
tained must  be  at  least  sufficient  to  support  a  married  pair 
in  good  working-order,  and  enable  them  to  bring  up  not  less 
than  two  children.  If  the  wages  are  not  enough  for  this, 
then  the  capitalist  must  sooner  or  later  suffer  damage.  For, 
if  the  laborer  have  so  little  food  or  clothing  or  shelter  that 
his  physical  health  is  impaired,  his  labor  will  be  less  pro- 
ductive. Unless  there  be  so  many  children  coming  to  ma- 
turity as  to  keep  up  the  full  number  of  laborers,  there  must 
be  a  decrease  of  production,  to  the  detriment  of  the  capi- 
talist as  well  as  of  the  whole  community.  There  is,  more- 
over, to  be  taken  into  account  the  liability  to  sickness  and 
accident ;  also  the  fact  of  old  age,  when  the  ability  to  labor 
diminishes  or  ceases.  Wages  which  are  adjusted  to  these 
conditions  are  the  lowest  possible  in  any  kind  of  reason. 
Whether  such  wages  would  be,  economically,  the  most  de- 
sirable, even  for  the  employer  and  the  capitalist,  will  be 
considered  hereafter.  There  are  reputable  economists  whose 
theories  oblige  them  to  regard  this  as  the  point  to  which 
wages  naturally  tend,  and  who  hold  that  above,  or  much 
above,  this  they  cannot  permanently  rise.  The  argument 
is,  that  higher  wages,  even  if  compatible  with  the  interests 
of  capital,  would  cause  too  great  an  increase  of  population ; 
thus  making  the  ratio  of  the  latter  to  capital  smaller,  and  so 
causing  again  a  diminution  of  wages. 


CHAPTER   III. 

WAGES  AS   AFFECTED    BY   VARIOUS   CIRCUMSTANCES. 

1.  We  are  to  distinguish  between  nominal,  wages  and  real 
wages.  The  former  indicates  the  amount  of  /,  -oney  received 
for  a  certain  amount  of  labor ;  the  latter  has  reference  to 
the  quantity  of  commodities  which  the  money  received  for 
the  labor  will  purchase.  If  a  man  had  received  a  dollar  a 
day  in  iS6o,  but  received  in  1870  a  dollar  and  a  half  for  the 
same  work,  it  does  not  necessarily  follow  that  wages  were 
fifty  per  cent  higher  in  the  latter  than  in  the  former  case. 
This  might  or  might  not  be  true ;  but  it  certainly  would  not, 
if  the  purchasing  power  of  money  were  nearly  twice  as  great 
in  i860  as  in  1870. 

2.  There  are  various  conditions  to  be  taken  into  account 
in  estimating  the  real  value  of  wages,  even  when  the  nominal 
amount  is  clearly  understood.  Sometimes  laborers  contract 
to  take  their  pay  in  commodities  furnished  by  the  employer, 
or  on  liis  order ;  and  it  is  frequently  the  fact,  that  the  real 
value  of  these  is  less  than  if  the  purchaser  had  ready  money 
in  hand,  and  a  choice  of  markets. 

There  are  also  cases  where  work  can  be  had  only  a  part 
of  the  year,  as  those  of  stone-masons  and  roof-tinners.  If 
the  daily  wages  are  twice  as  high  as  in  ordinary  trades,  while 
work  can  be  had  only  half  as  many  days  in  the  year,  the  real 
earnings  are  only  the  same. 

H7 


148  POLITICAL   ECONOMY. 

3.  There  are  some  conditions  affecting  wages,  which  are 
different  from  those  just  mentioned.  There  is,  first,  the 
agreeableness  of  the  employment.  This  has  no  small  influ- 
ence in  determining  wages  :  men  will  work  for  less  in  an 
occupation  where  the  work  is  to  their  taste  and  the  associa- 
ations  are  pleasant,  than  where  it  is  against  their  inclinations, 
or  in  any  way  repugnant  to  them.  Some  occupations  imply 
higher  compensation,  from  the  fact  of  the  greater  difficulty 
of  preparation  for  them.  I  do  not  now  refer  to  merely 
those  which  require  a  marked,  or  more  than  ordinary,  natu- 
ral ability,  or  superior  education ;  though  it  is  true  of  them 
also.  But  there  are  certain  trades  to  which  years  of  toil 
must  be  devoted,  and  sometimes  much  expense  incurred,  in 
order  to  their  acquirement. 

One  other  circumstance  which  affects  wages  is  the  amount 
of  trust  and  confidence  which  the  employed  receive  from 
the  employer.  A  confidential  clerk  in  a  great  business  house 
receives  a  large  salary.  The  wages  paid  to  an  engineer  in 
an  extensive  factory,  or  to  any  other  workman  upon  whom 
the  lives  of  many  persons,  the  safety  and  efficiency  of  the 
machinery,  and  the  regular  on-going  of  a  vast  establishment 
depend,  are  likely  to  be  much  greater  than  those  paid  to 
persons  upon  whom  no  such  responsibility  rests,  even  though 
the  labor  of  the  latter  may  be  far  more  toilsome  than  that 
of  the  former. 

4.  The  influence  of  the  industrial  system  of  a  community 
on  wages  is  very  great.  A  section  in  which  agriculture  is 
almost  the  exclusive  occupation  will  be  characterized,  other 
things  being  equal,  by  low  wages.  The  same  will  be  true  of 
a  community  where  there  is  a  small  variety  of  industries. 
In  the  northern  counties  of  England,  particularly  in  York- 
shire and  Northumberland,  the  wages  of  the  agricultui;al 
laborer  in  the  late  autumn  and  the  early  winter  are  thirteen 


WAGES  AS  AFFECTED   BY  CIRCUMSTANCES.      149 

or  fourteen  shillings  a  week ;  while  for  the  same  kind  of 
labor  in  the  south-western  counties  of  Dorsetshire  and  Wilt- 
shire, the  wages  average  less  than  nine  shillings.  The  differ- 
ence is  not  in  the  nominal,  as  distinguished  from  the  real, 
wages.  The  reason  for  this  variation  of  more  than  forty  per 
cent  is  found  in  the  fact,  that  one  of  these  districts  has  a 
great  diversity  of  employments,  while  the  other  is  almost 
exclusively  agricultural. 


CHAPTER   IV. 

HIGH  AND   LOW  WAGES   AS   RELATED  TO   DEAR   AND   CHEAP 

LABOR. 

1.  As  we  have  seen,  it  is  not  the  amount  of  money 
received  for  labor  that  determines  whether  wages  are  high  or 
low ;  so,  on  the  other  hand,  labor  is  counted  dear  or  cheap, 
not  by  the  amount  of  money  paid  for  it,  but  by  the  amount 
of  valuable  product  secured  for  the  money  paid.  An  em- 
ployer may  buy  a  day's  work  of  one  man  for  a  dollar  and  a 
half,  and  of  another  for  a  dollar,  just  as  he  may  buy  one  axe 
for  two  dollars,  and  another  for  one  dollar.  But  in  both  cases 
the  higher-priced  may  be  the  cheaper.  The  two-dollar  axe 
may  be  of  three  times  the  service  that  the  one-dollar  one  is, 
and  the  dollar-and-a-half  laborer  may  effect  twice  as  much 
as  the  one  who  works  for  a  dollar. 

There  is  another  way,  not  always  taken,  of  looking  at  this 
subject.  Low  wages  are  sometimes  the  cause  of  inefficient 
labor,  as  well  as  the  latter  of  the  former.  Looking  at  the 
matter  in  this  light,  it  is  possible  that  capitalists  and  em- 
ployers may  find  some  way  to  avoid  the  difficulty  of  the 
wages  question  without  more  sacrifice  than  will  result  in  their 
ultimate  advantage. 

2.  The  theory  of  a  necessary  rate  of  wages,  if  rigidly  ad- 
hered to,  would  utterly  preclude  all  hope  of  any  substantial 
improvement  in  the  condition  of  laborers.     They  are,  ac- 

150 


HIGH  AND   LOW   WAGES.  151 

cording  tO  this  theory,  doomed  to  remain  at  the  point  where 
the  rewards  of  labor  are  just  sufificient  to  keep  them  in  fair 
working-order  on  the  one  hand,  and  meagre  enough  on  the 
other  to  prevent  their  increasing  faster  than  the  increase  of 
capital.  But  is  there  not  a  possibility  that  this  "  necessary 
rate  "  might  keep  the  laborer  at  some  point  below  that  of 
the  highest  efficiency  practicable  to  him  as  even  a  mere 
human  mac-iine? 

"  Looking  upon  a  human  laborer,  then,  as  we  would  upon 
a  steam-engine,  we  see  that  the  amount  of  force  which  he  is 
capable  of  creating  depends  upon  the  amount  of  food  sup- 
plied to  him  ;  a  part  of  it  answering  the  purpose  of  the 
coal  which  gives  heat,  another  answering  to  the  water  which 
is  converted  into  steam  and  generates  motion.  A  sheet-iron 
jacket  put  around  the  boiler  prevents  the  waste  of  heat  in 
one  case,  just  as  a  woollen  jacket  about  the  body  of  the 
laborer  does  in  the  other.  But  food,  clothing,  and  shelter  are 
supplied  to  the  human  machine  in  the  shape  of  wages.  To 
stint  them,  and  to  keep  the  laborer  down  to  the  lowest  point 
that  will  induce  him  to  live,  without  deterring  him  from  prop- 
agation, is  precisely  the  same  kind  of  economy  which  would 
keep  the  steam-engines  of  a  nation  at  half  their  working- 
power  to  save  wood  and  water  and  sheet-iron.  The  rate  of 
wages  which  such  considerations  would  demand  has  been 
attained  in  very  few  regions  of  the  world.  Suppose  it  any- 
where to  have  been  reached  :  the  laborer  is  only  brought  up 
to  the  condition  of  an  ox.  But  he  has  intelligence,  which  the 
ox  has  not ;  and  it  is  the  great  element  of  his  industrial  power. 
In  the  lowest  description  of  labor,  there  is  occasion  for  judg- 
ment in  the  selection  of  means,  in  the  modes  of  exerting 
force  most  advantageously,  and  in  the  adoption  of  tools 
and  simple  mechanical  principles  to  economize  time  and 
strength."  ' 

^*  E.  p.  Smith's  Political  Economy,  p.  107. 


152  POLITICAL   ECONOMY. 

Clearly  enough,  economy  does  not  require  us  to  secure 
any  kind  of  labor  or  laborers  that  can  be  had  at  the  lowest 
price,  but  to  secure  that  labor  which  will  produce  the  most 
at  the  least  expense.  If  a  man  whose  nerves  and  muscles 
are  in  the  best  condition  because  his  means  of  subsistence 
are  ample,  whose  hope  of  securing  a  competence  gives  him 
vigor,  enterprise,  and  self-respect,  and  whose  intelligence 
and  prudence  enable  him  to  see  a  hundred  ways  of  econo- 
mizing productive  conditions  and  avoiding  waste,  demands 
large  wages,  —  who  does  not  see  that  it  is  better  for  his 
employer  to  meet  this  demand,  than  to  give  half  or  a 
quarter  as  much  for  an  ignorant,  hopeless,  under- fed  human 
animal  ? 


CHAPTER  V. 


"the  wages- fund.** 


1.  The  doctrine  of  the  wages-fund  has  been  stated  in 
Chapter  II.,  2.  The  only  remedy  for  low  wages,  according 
to  it,  is  such  restraints  as  will  keep  the  ratio  of  population  to 
capital  below  a  given  point.  Any  increase  of  the  former 
beyond  that  diminishes  wages.  If  it  increase  much,  the 
wages  will  be  so  low  that  subsistence  will  be  insufficient,  and 
population  will  be  checked.  There  is  no  other  alternative. 
The  laborers  must  carefully  limit  the  size  of  their  families, 
or  suffer  the  direful  consequences  of  want  and  famine.  It 
would  not  be  so  bad  if  each  one  had  only  to  govern  himself, 
in  order  to  reap  the  fruit  of  his  own  pnidence.  But  it  is  of 
no  account  for  one  or  a  few  to  do  this,  unless  there  is  a  gen- 
eral co-operation  of  laborers.  Consequently  such  a  remedy 
is  impracticable ;  consequently,  too,  there  is  no  remedy : 
there  is  the  natural  rate  of  wages,  and  there  is  no  legitimate 
possibility  of  any  general  or  permanent  change  for  the  better. 
For  if  capital  increase,  no  matter  how  rapidly,  the  increase 
of  wages  could  be  only  temporary ;  since,  according  to  the 
theory,  this  increase  would  occasion  an  increase  of  popula- 
tion, speedily  restoring  the  old  ratio. 

2.  We  have  already  seen  that  the  amount  of  product,  and 
consequently  of  profit,  is  not  necessarily  inversely  as  wages. 
The  very  smallness  of  the  wages  sometimes  makes  the  prod- 

153 


154  POLITICAL   ECONOMY. 

uct  not  only  smaller,  but  proportionally  smaller.  When 
wages  are  at  the  point  where  they  barely  keep  the  laborer  in 
good  working-condition,  a  diminution  of  them  will  simply 
subtract  from  his  producing-power,  with  no  advantage  to  the 
employer. 

3.  Another  argument  against  the  theory  under  considera- 
tion is  set  forth  by  Professor  F.  A.  Walker  with  great  clear- 
ness. He  denies  the  doctrine  that  wages  are  paid  out  of 
capital.  The  assumption  thus  contradicted  lies  at  the  basis 
of  the  theory,  and  is  the  vicious,  though  plausible,  element 
in  it.  It  is  true  that  capital  is  often  drawn  upon  for  the 
advance  of  wages.  But  even  this  is  not  always  the  case. 
Every  one  who  is  acquainted  with  business  knows  that  there 
are  many  enterprises  in  which  the  workmen  draw  only  a 
small  portion,  and  sometimes  none,  of  their  wages  till  there 
are  returns  from  the  sale  of  the  product. 

"  It  is  the  prospect  of  a  profit  in  production  which  deter- 
mines the  employer  to  hire  laborers  ;  and  it  is  the  antici- 
pated value  of  the  product  that  determines  how  much  he 
can  pay  them.  The  product,  then,  and  not  capital,  fur- 
nishes at  once  the  motive  to  employment,  and  the  measure 
of  wages.  If  this  be  so,  the  whole  wage-fund  theory  fells ; 
for  it  is  built  on  the  assumption  that  capital  furnishes  the 
measure  of  wages.  The  wage-fund  is  no  larger  because  of 
the  lack  of  capital,  and  the  only  way  to  increase  the  aggregate 
amount  is  to  increase  capital."  ' 

4.  Professor  Walker  shows  further,  that  the  theory  takes 
no  account  of  the  quality  of  laborers,  and  is  thereby  seriously 
at  fault.  Suppose  there  is  a  certain  amount  of  capital  which 
is  set  apart  for  wages.  Now,  according  to  the  dogma,  this 
is  the  dividend,  and  the  number  of  laborers  is  the  divisor 
which  is  to  determine   the   quotient,  that   is,  the    rate   of 

'  The  Wages  Question,  p.  144. 


"THE    WAGES-FUND."  1 55 

wages.  It  will  make  no  difference,  according  to  the  theory, 
whether  these  laborers  are  the  better  class  of  English  and 
American  workmen,  or  the  worse  class  of  Irish  or  East 
Indians  whose  efficiency  averages  less  than  one-fourth  that 
of  the  former :  the  wages  must  be  the  same  ! 


CHAPTER  VI. 

Carey's  law  of  the  increase  of  wages. 

1.  Mr.  Carey  has  developed  what  he  regards  as  a  grand 
law  governing  the  relations  of  labor  to  capital  in  every  well- 
ordered  society.  This  principle  is  also  supported  by  Bas- 
tiat,  one  of  the  leading  French  economists,  and  by  others 
of  note.  It  may  be  stated  as  follows  :  As  society  advances, 
the  laborer's  pi-oportion  of  the  joint  product  of  labor  and 
capital  tends  steadily  to  increase  ;  the  propo7-tion  of  the  cap- 
italist tends  steadily  to  decline  ;  while  the  quantity  assigned 
to  both  steadily  increases.  This  is  in  accordance  with  the 
principle  already  illustrated,  that,  as  society  improves  (at 
least  up  to  a  certain  point,  which  no  nation  has  yet  reached), 
both  wealth  and  population  increase,  but  the  former  faster 
than  the  latter. 

2.  Let  us  look  at  some  apparent  manifestations  of  this 
principle.  The  savage  who  has  invented  a  bow  and  arrow, 
with  which  he  can  secure  as  much  game  in  a  day  as  before 
in  a  week,  may  loan  them  to  a  neighbor  on  the  condition 
of  receiving  for  their  use  three-quarters  of  the  product. 
This  may  seem  like  an  enormous  profit ;  but  to  the  bor- 
rower, even  at  that  rate,  it  is  a  very  great  advantage  ;  since, 
after  paying  for  the  use  of  the  implements,  he  still  has  twice 
as  much  game  as  he  could  have  secured  without  them.  But, 
as  other  men  construct  bows  and  arrows,  there  is  a  compe- 

156 


CAREY'S  LAW  OF   THE  INCREASE   OF   WAGES.      !$■/ 

tition  among  the  capitalists ;  and  the  instruments  begin  to 
be  loaned  at  the  price  of  two-thirds,  one-half,  one-quarter, 
and  one-tenth  or  twentieth  of  the  product.  As  other  inven- 
tions come  in,  the  same  thing  will  occur  in  respect  to  them ; 
namely,  that  capital  will  be  having  an  always  diminishing, 
and  labor  an  always  increasing,  proportion  of  the  joint  prod- 
uct. The  first  fishing-net,  the  first  canoe,  and  the  first  rude 
cutting-instrument  bring  large  compensation  for  their  use  ; 
but  they  will  prepare  the  way  for  others  which,  will  not  only 
be  improvements  on  their  predecessors,  but,  by  reason  of 
their  multiplication,  will  command  less  and  less  compen- 
sation. 

3.  Take  as  an  illustration  the  cutting  instrument.  Poor 
as  was  the  axe  of  stone,  its  utility  was  very  great.  The 
canoe,  which  could  not  be  constructed  at  all  without  it,  gave 
great  increase  of  power  to  the  owner.  Another  than  the 
owner  of  the  axe  can  well  afford  to  pay  the  latter  three- 
quarters  of  all  he  can  produce  by  the  use  of  it,  for  the  one- 
fourth  falling  to  his  own  share  is  much  more  than  he  could 
secure  without  it. 

After  a  time  the  bronze  axe  is  invented,  and  proves  far 
more  useful.  The  stone  axe  is  still  in  use  ;  but  its  value  has 
greatly  depreciated,  since  the  same  amount  —  or  probably 
a  smaller  amount  —  of  labor  is  requisite  to  the  production 
of  the  bronze  axe.  For  this  reason  the  owner  of  the  latter 
will  loan  it  for  something  less  than  the  proportion  previously 
received  for  the  stone  axe,  say  for  two-thirds  the  product. 
As  this  product  will  be  at  least  twice  as  great  as  before,  both 
the  laborer  and  the  capitalist  are  benefited ;  the  former  re- 
ceiving a  larger  proportion  as  well  as  a  large  amount  of  the 
product,  while  the  latter  receives  also  a  larger  amount,  though 
a  smaller  proportion.  The  comparative  effects  of  the  later 
and  earlier  distribution  are  as  follows  :  — 


158 


POLITICAL  ECONOMY. 


Stage. 

Total 
Product. 

Laborer's 
Share. 

Capitalist's 
Share. 

First 

Second  

4 
8 

I 

23 

3 

5i 

"  The  reward  of  labor  has  more  than  doubled,  being  an  in- 
creased proportion  of  an  increased  quantity.  The  capital- 
ist's share  has  not  quite  doubled,  he  receiving  a  diminished 
proportion  of  an  increased  quantity.  The  portion  of  the 
laborer,  which  had  been  at  first  as  one  to  three,  is  now  as 
one  to  tAvo,  with  great  increase  of  power  to  become  himself 
a  capitalist." 

The  axe  of  iron  now  being  invented,  and  being  the  prod- 
uct of  less  labor  than  the  axe  of  bronze,  but  having  at  the 
same  time  far  greater  utility,  its  owner  will  be  content  with 
a  still  smaller  p7'oportion,  while  he  will  receive  a  still  larger 
amount  of  the  product.  So  of  the  axe  of  steel,  coming  after 
that  of  iron  :  its  cost  will  be  less,  while  its  product  will  be 
more.  The  capitalist  will  find  an  augmentation  of  his  share 
of  the  product,  but  his  proportion  will  be  still  less  than 
before.  Both  the  proportion  and  the  amount  falling  to  the 
laborers  will  be  enhanced.  The  following  table  will  rep- 
resent the  whole  process  of  the  operation  of  the  law  :  — 


Total 
Product. 

Laborer's 
Share. 

Capitalist's 
Share. 

Axe  of  stone .... 
Axe  of  bronze   .     .     . 
Axe  of  iron  .... 
Axe  of  steel  .... 

4 

8 

i6 

32 

I 

23 
8     '• 

i9ro 

3 

8 

T->    ** 

i2-ni 

CAREY'S  LAW  OF   THE   INCREASE   OF   WAGES.      159 

Of  course,  this  is  but  an  imperfect  representation  of  the 
operation  of  this  principle,  but  it  is  exemplified  in  a  great 
variety  of  facts  in  the  relations  of  human  society.  It  is  not 
a  mere  theory,  beautiful  and  wholesome  in  idea  but  prac- 
tically inoperative.  The  whole  history  of  labor  in  its  rela- 
tion to  capital,  whether  in  the  form  of  wages  or  rent  or 
interest,  indicates  more  or  less  clearly  its  existence.  It  is 
not  intended  to  assert  that  it  operates  palpably  everywhere 
and  under  all  sorts  of  conditions.  The  bad  policies  adopted 
by  communities,  or  the  surrender  of  general  to  class  interests, 
may  counteract  this  as  well  as  any  other  natural  tendency. 
But,  in  an  advancing  civilization  and  a  prosperous  community, 
this  law  is  nearly  certain  to  manifest  itself. 

4.  No  one  can  reasonably  doubt  that  real  wages  have 
been  advancing  in  all  the  civilized  nations  during  the  last 
three  or  four  centuries.  That  the  laboring-men  in  most  of 
the  European  countries  are,  as  a  general  rule,  better  fed, 
clad,  and  housed  now  than  they  were  a  century  ago,  and 
that  they  were  then  better  off  than  in  the  previous  oentury, 
can  easily  be  made  evident.  Says  McCulloch,  himself  a 
disciple  of  Ricardo  and  Malthus,  "  Let  any  one  compare 
The  state  of  this  or  any  European  country  with  what  it  was 
five  hundred,  or  even  one  hundred,  years  ago,  and  he  will 
be  satisfied  that  prodigious  advances  have  been  made  ;  that 
the  means  of  subsistence  have  increased  much  more  rap- 
idly than  the  population  ;  and  that  the  laboring-population 
are  now  generally  in  possession  of  conveniences  and  luxuries 
that  were  formerly  not  enjoyed  by  the  richest  lords."  This 
is  more  conspicuously  true  in  France  than  in  England. 

/ 


CHAPTER  VII. 

REMEDIES   FOR   LOW   WAGES. 

1.  Are  there  any  real  remedies  for  the  evils  which  are  still 
incident  to  our  system  of  labor?  If  the  theory  of  wages 
which  we  have  been  examining  is  correct,  there  would  seem 
to  be  no  help.  Yet,  since  great  improvements  have  been 
going  on  for  some  centuries,  and  as  these  have  taken  place 
without  violating  any  natural  law,  and  even  in  opposition  to 
many  adverse  theories,  and  in  spite  of  social,  governmental, 
and  other  unnatural  obstacles,  it  is  pretty  nearly  certain  that 
there  must  be  some  economic  principles  in  accordance  with 
which  general  and  constant  improvement  may  come. 

2.  The  extent  to  which  the  government  may  interfere  to 
promote  the  interests  of  the  laborer  is  a  question  of  some 
importance.  .  If  the  doctrine  held  by  the  extreme  school  of 
British  economists  is  correct, —  namely,  that  government  has 
no  functions  except  those  implied  in  maintaining  justice,  — 
that  settles  the  question.  But  there  are  very  few  of  even 
this  school  who  accept  the  extreme  consequences  of  their 
premises.  It  is  generally  admitted,  that  it  is  the  duty  of 
the  government  to  see  that  every  man  has  a  fair  chance  to 
disppse  of  his  labor  to  the  best  advantage.  No  one  should 
be  arbitrarily  excluded  from  privileges  which  under  the  same 
circumstances  others  are  permitted  to  enjoy.  Fair  and 
equal  competition  is  not  to  be  complained  of;  but  unequal 

i6o 


REMEDIES  FOR   LOW   WAGES.  l6l 

competition,  caused  or  occasioned  by  obstacles  which  gov- 
ernment can  remove,  should  not  be  permitted.  Government 
cannot  fix  the  rate  of  wages,  or  the  prices  of  commodi- 
ties, or  do  any  thing  necessarily  implying  either  of  these  ; 
but  there  are  some  things  that  come  naturally  within  its 
province. 

It  may  provide  for  general  education ;  it  may  also,  to  a 
considerable  extent,  furnish  opportunity  for  technical  educa- 
tion. It  can  prevent  the  employment  of  young  children  in 
factories  and  shops  ;  both  that  they  may  have  opportunity  for 
education,  and  for  other  economical  reasons.  It  may  make 
sanitary  regulations  in  the  interests  of  laborers,  both  in  re- 
spect to  the  rooms  and  buildings  in  which  labor  is  to  be  per- 
formed, and  in  respect  to  tenements  and  lodging-houses. 
It  may,  too,  within  certain  limits,  regulate  the  hours  of  labor ; 
though  these  limits  would  probably  differ  under  different  cir- 
cumstances. There  is,  of  course,  a  possibility  of  uneconom- 
ical as  well  as  economical  action  here. 

3.  A  supposed  remedy  for  low  wages,  to  which  resort  is 
often  had,  is  that  of  a  "  strike."  This  is  simply  a  combina- 
tion of  workmen  to  make  a  demand  upon  their  employers 
concerning  wages  and  other  conditions,  and  a  refusal  to 
work  unless  their  demands  are  met.  If  the  workmen  are 
united,  and  remain  firm,  unless  the  employer  can  secure 
other  workmen,  the  latter  must  accede  to  the  conditions, 
or  his  whole  capital  must  lie  idle  at  no  small  loss,  until  one 
party  yield^  or  some  compromise  is  effected. 

Strikes  have  been  summarily  condemned  by  many  persons. 
Of  course,  if  the  theory  of  a  rigid  natural  rate  of  wages  is 
correct,  strikes  are  not  only  useless,  but  every  way  harmful. 
Whether,  in  the  case  of  the  incorrectness  of  that  theory,  such 
combinations  are  effective  of  any  good,  is  an  open  question. 
That  laborers  as  well  as  employers  may  find  some  advantage 


1 62  POLITICAL   ECONOMY. 

in  combination,  is  not  doubtful.  The  very  fact  that  there  is 
a  liability  of  such  combinations,  is  of  itself  an  inducement  to 
employers  to  avoid  all  occasions  for  them. 

On  the  other  hand,  there  are  on  the  side  of  the  laborers 
many  obstacles  to  success  by  this  device.  It  is  not  always 
practicable  to  make  the  combination  so  general  but  that 
other  laborers  can  be  secured  in  the  place  of  those  in  the 
strike.  Again,  there  is  a  great  loss  of  time,  and  therefore  of 
wages.  Those  who  earn  only  enough  to  support  themselves 
from  day  to  day  have  no  store  laid  by,  and  therefore  must 
depend  on  the  earnings  of  the  more  fortunate.  It  is  of  the 
essence  of  a  successful  strike,  that  all  who  engage  in  it  be  able 
to  hold  out.  To  this  end,  tliose  who  have  saved  any  thing 
must  share  with  those  who  have  nothing.  It  thus  becomes 
a  question  of  average  means,  and  this  is  pitted  against  the 
usually  still  greater  means  of  employers.  The  chances  are 
against  success,  and  yet  success  is  not  impossible.  There 
are  cases  in  which  the  employers  are  compelled  to  yield. 
But  even  in  the  event  of  success,  the  loss  may  be  greater 
than  the  gain.  Dr.  John  Watts  '  illustrates  the  losses  and 
gains  of  a  successful  strike.  "  Assuming  five  per  cent  ad- 
dition to  existing  wages  to  be  the  matter  in  dispute  between 
the  employers  and  the  laborers,  he  shows,  that,  if  the  strike 
succeeds,  its  results  will  be,  roughly  speaking,  as  follows  :  — 

The  loss  of  I  lunar  month's  wages  will  require,  to  make  it  up,  if  years 

of  work  at  the  extra  rate. 
The  loss  of  2  lunar  months'  wages  will  require,  to  make  it  up,  3^  years 

of  work  at  the  extra  rate. 
The  loss  of  6  lunar  months'  wages  will  require,  to  make  it  up,  9?  years 

of  work  at  the  extra  rate. 
The  loss  of  12^^  lunar  months'  wages  will  require,  to  make  it  up  20 

years  of  work  at  the  extra  rate. 

*  See  Professor  F.  A.  Walker:  The  Wages  Question,  pp.  30,  31. 


REMEDIES  FOR   LOW   WAGES.  1 63 

"The  strike  of  the  London  builders  in  1859  was  for  ten 
per  cent  of  time,  or  its  equivalent,  ten  per  cent  of  wages, 
and,  as  it  lasted  twenty-six  weeks,  would,  if  successful,  have 
required  ten  and  two-fifths  years  of  continuous  work  at  the 
extra  rate  to  make  up  the  loss  of  wages  sacrificed." 

There  are  otlier  losses  implied  in  a  strike.  A  period  of 
idleness  is  likely  to  furnish  occasion  for  the  formation  of  bad 
habits  which  may  be  a  permanent  detriment  to  the  laborer. 
The  circumstances  are  also  apt  to  engender  bad  blood,  and 
this  is  economically  as  well  as  otherwise  a  damage.  The  loss 
of  the  employer  is  always  something  ;  and  this  is  a  diminution 
of  the  capital  of  the  community,  and,  so  far  forth,  harmful  to 
the  laborer.  Further,  the  diminution  of  product  occasions 
enhancement  of  value  ;  and  this,  if  general,  is  a  virtual  reduc- 
tion of  wages. 

It  thus  appears  that  strikes  are  not  an  unmixed  good,  even 
when  successful.  When  unsuccessful,  they  are  a  serious  mis- 
fortune. On  the  other  hand,  they  are  not  an  unmixed  evil. 
They  do  sometimes  effect  that  at  which  they  aim  The  fact 
that  they  are  possible,  and  even  actual,  is  a  perpetual  advan- 
tage to  the  laborer  in  every  contest  to  which  he  is  liable  with 
the  employer. 

4.  Trades-icnioiis  are  a  more  permanent  form  of  combi- 
nation than  strikes.  They  embrace  usually  only  laborers 
of  the  same  trade.  They  have  two  general  objects.  In  the 
first  place,  they  serve  the  purposes  of  mutual  aid.  Informa- 
tion is  diffused,  the  sick  and  disabled  are  assisted,  and  any 
case  of  unusual  hardship  or  oppression  becomes  the  interest 
of  the  whole.  So  far  they  are,  or  at  least  may  be,  of  great 
advantage.  As  a  means  of  mutual  defence,  encouragement, 
and  intelligence,  they  add  to  the  value  of  man,  tend  to  the 
increase  of  production,  and  secure  for  the  laborer  a  con- 
stantly growing  proportion  of  the  joint  product  of  labor 
and  capital. 


164  POLITICAL   ECONOMY. 

In  the  second  place,  a  trades-union  contemplates  such 
an  organization  of  its  members  as  will  have  a  direct  influence 
upon  their  wages.  There  is  a  purpose  to  compass  directly, 
and  sometimes  by  questionable  means,  such  a  rise  of  wages 
as  can  only  come  about  in  accordance  with  fixed  economical 
principles.  One  of  the  methods  used  is,  to  restrict  the  num- 
ber of  laborers  in  a  particular  trade.  Some  unions  have 
rules  designed  to  effect  this  limitation.  Only  a  certain  num- 
ber of  apprentices  are  to  be  permitted.  Employers  must 
not  admit  new  workmen  except  under  certain  specified  con- 
ditions, and  only  so  many  within  such  and  such  times  The 
motive  is  to  keep  the  number  of  laborers  so  small  that  wages 
shall  be  as  high  as  possible.  It  may  be  temporarily  advan- 
tageous, possibly  permanently  so  in  a  few  cases ;  just  as  it  is 
advantageous  to  a  company  of  capitalists  to  obtain  control 
of  the  whole  supply  of  a  commodity  for  which  there  is  a 
large  demand,  and  thus  keep  the  trade  in  their  own  hands, 
and  prevent  free  competition.  In  the  one  case,  as  in  the 
other,  the  supply  is  smaller  than  if  there  were  no  restriction, 
and  the  price  of  the  article  is  greater.  In  the  case  of  the 
trades-union,  by  limiting  the  number  of  laborers,  the  product 
is  diminished,  and  the  price  is  increased,  making  a_  doubly 
bad  economical  result 

5.  Co-operative  association  has  been  largely  urged  of  late 
as  a  remedy  for  the  disadvantages  of  workmgmen.  By  co- 
operative association  pure  and  simple,  is  meant  the  carrying- 
on  of  a  business  enterprise  on  such  terms  that  profits  shall 
be  wholly  divided  among  the  laborers,  m  propoition  to  the 
contribution  of  each  to  tlie  product.  There  have  been  some 
remarkable  and  successful  experiments  in  this  direction 
within  the  last  tliirty  years ;  but  the  most  of  these,  and  es- 
pecially the  most  conspicuous,  have  been  not  in  productive, 
but  in  commercial,  enterprises.     One  of  these    lias  iiad  a 


REMEDIES  FOR   LOW   WAGES.  1 65 

fame  extending  over  the  civilized  world  ;  namely,  that  of  the 
Rochdale  Association.  This  combination  has  unquestion- 
ably been  a  successful  one,  and  greatly  advantageous  to  its 
members  and  patrons.  It  has  been  thought,  because  of 
the  success  of  this  and  some  other  but  inferior  instances 
of  commercial  co-operation,  that  the  principle  could  be 
applied  to  manufacturing  industry.  There  have  been  some 
experiments  m  this  direction,  and  with  a  certain  degree  of 
success  in  England.  Yet,  as  I  have  understood,  the  co- 
operation has  not  extended  to  all  the  laborers,  only  to  those 
furnishing  capital ;  so  that,  after  all,  they  have  been  of  the 
nature  of  joint- stock  companies. 

6  Among  the  difficulties  m  the  way  of  productive  co- 
operation are  to  be  reckoned  tlie  reverses  to  which  all  busi- 
ness is  liable,  and  which  require  a  considerable  reserve  of 
capital  in  order  that  they  may  be  safely  tided  over.  Expe- 
rienced busmess  men  have  estn-natcd,  that,  on  the  average, 
about  one  year  in  six  there  will  be  no  profit  in  most  kinds 
of  manufacturing,  and  there  may  be  a  considerable  loss. 
The  profits  of  the  other  five  years  have  to  make  up  this 
deficiency.  Now,  if  there  is  only  capital  enough  to  carry  on 
the  busijiess  in  these  prosperous  years,  there  will  be  in  the 
adverse  years,  not  only  no  profits  to  be  divided,  but  there 
may  a  failure  of  wages. 

Another  more  serious  difficulty  is  found  in  the  nature  and 
requirements  of  what  has  all  along  been  spoken  of  as  the 
employe}-^  The  employer  is  to  be  distinguished  from  the  capi- 
talist, with  whom  he  is  often  confounded.  The  fimctions  of 
both  may  co  exist  in  the  same  individual,  but  they  are  not 
identical.  The  employer  must  be  a  man  competent  to  con- 
duct business.     He    must   be   an    organizer,  not   merely  a 

'  See  F.  A.  Walker:  The  Wages  Question;  also  Political  Economy,  by  the  same 
author. 


1 66  POLITICAL    ECONOMY. 

superintendent  or  overseer ;  but  he  must  have  the  skill  and 
the  ability  to  put  labor  and  capital  together  so  as  to  render 
them  profitably  productive.  He  must  also  have  several 
other  qualities  that  do  not  often  come  together  in  one  per- 
son,—  good  financial  ability,  a  quick  discernment  and  ready 
judgment  in  buying  and  selling,  an  accurate  perception  of 
the  wants  of  the  public  both  m  character  and  extent,  and 
many  other  things.  He  may  be  without  capital  of  his  own ; 
and  yet,  whether  a  capitalist  or  not,  he  is  a  "  captain  of  in- 
dustry," and  just  as  essential  to  the  carrying-forward  of 
productive  enterprises  as  the  commander  of  an  army  to  the 
conduct  of  a  campaign. 

There  are  only  a  few  persons  in  whom  all  these  conditions 
meet.  But  such  men  are  as  essential  to  the  laborers  as  they 
are  to  the  capitalist,  and  they  cannot  be  fiirnished  to  order 
from  either  class.  Here,  then,  is  the  difficulty.  Where  the 
industry  is  free,  and  all  have  something  like  a  fair  chance, 
the  emj'jloyer  generally  and  naturally  comes  to  his  place.  I 
do  not  assert  that  there  are  no  mere  wage-laborers  who  are 
not  as  competent  to  be  employers,  in  the  sense  in  which 
that  term  is  here  used,  as  many  who  now  essay  to  exercise 
that  function.  But  there  is,  in  the  co  operative  system,  no 
natural  method  of  ascertaining  such  a  functionary.  There 
must  be  experiment,  and  experiments  in  such  a  case  are 
costly.  A  single  unsuccessfiil  one  would  be  disastrous  :  two 
successive  failures  would  most  likely  prove  fatal. 

7.  Co-partJiership  of  industry  has  sometimes  been  tried 
by  employers  and  proprietors  with  gratifying  results.  La- 
borers may  be  admitted  to  a  participation  in  the  profits 
which  are  realized  through  their  own  industry.  Professor 
Fawcett '  discusses  this  device  m  an  interesting  way.  I  avail 
myself  of  some  of  his  illustrations.     The  reluctance  of  em- 

'  Manual  of  Political  Economy,  pp.  250-253. 


REMEDIES  FOR   LOW   WAGES.  1 6/ 

ployers  to  concede  the  demands  of  their  workmen  for  the 
increase  of  wages,  is  based  upon  the  supposition  that  every 
such  increase  diminishes  by  just  so  much  their  profits.  This 
has  been  the  setUed  opinion  of  some  economists.  It  has  been 
shown  in  previous  sections,  that  this  is  by  no  means  ahvays 
the  case.     Otlier  instances  go  to  show  its  incorrectness. 

One  of  the  illustrations  of  the  advantage  of  co-partnership 
in  production  is  that  of  M.  Leclaire,  a  house-decorator  in 
Paris.  He  employed  about  two  hundred  workmen,  and  had 
become  greatly  discouraged  with  the  apathy  and  careless^ 
ness  which  they  manifested,  subjecting  him  to  constant  loss 
and  annoyance.  He  therefore  proposed  to  give  them  some 
pecuniary  interest  in  the  work,  hoping  to  inspire  in  them  a 
higher  ambition  with  reference  to  it.  He  called  them  to- 
gether, and  told  them  he  would  continue  to  pay  them  the 
customary  wages,  and  at  the  end  of  the  year  would  distrib- 
ute among  them  a  certain  share  of  the  profits  realized.  The 
]:>lan  worked  admirably  ;  and  M.  Leclaire  declared  not  only 
til  at  he  was  otherwise  satisfied,  but  that  he  was  in  a  pecuniary 
sense  abundantly  recompensed  for  the  share  of  the  profits 
given  to  the  workmen.  Nor  is  this  unnatural.  It  accords 
with  the  principle  previously  set  forth.  Larger  remuneration 
often  adds  to  the  efficiency  of  the  laborer ;  and  this  implies 
larger  product,  and  consequently  more  to  be  distributed. 
In  the  case  before  us,  there  is  an  additional  reason  for  a 
larger  product,  and  hence  a  larger  profit.  There  is  the 
motive  to  save  material  and  tools,  and  to  make  the  most 
possible  out  of  what  is  furnished.  Much  is  also  saved  in 
the  matter  of  superintendence.  The  cost  of  overseeing  la- 
borers who  are  interested  only  to  receive  their  wages,  and 
are  careless  whether  the  employer  realizes  much  or  little 
from  their  work,  is  usually  very  great.  But  when  the  em- 
ployee has  a  direct  interest  in  the  product,  there  is   less 


1 68  POLITICAL   ECONOMY, 

liability  to  shirk  or  to  waste,  and  a  greater  inducement  to 
make  every  thing  tell  for  the  interest  of  the  enterprise.  In 
such  a  case,  labor  largely  superintends  itself,  and  the  expense 
otherwise  incurred  is  added  to  the  profits. 

8.  The  waives  of  ivomeii.  A  social  phenomenon  which 
few  have  failed  to  observe  is  that  of  the  difference  between 
the  wages  cf  women  and  those  of  men  in  similar  employ- 
ments. At  first  sight  the  fact  seems  out  of  harmony  with  the 
general  laws  of  political  economy,  yet  the  apparent  discord 
is  not  altogether  inexplicable. 

There  are  several  reasons  why  the  wages  of  women  are 
lower  than  those  of  men.  One,  and  perhaps  the  most  in- 
fluential of  these,  is  that  the  supply  of  the  kind  of  service 
which  women  offer  in  the  market  is  much  greater  m  pro- 
portion to  the  demand  for  it,  than  is  the  kind  of  labor  offered 
by  men.  Let  us  look  at  this  a  little  more  particularly.  Owing 
to  what  seems  to  many  a  vice  of  our  social  system,  the  variety 
of  labor  which  women  have  to  offer  for  wages  is  very  limited, 
while  the  amount  is  very  great.  There  are  comparatively 
few  occupations  to  which  women  are  admitted.  Hence  the 
number  of  women  who  have  labor  to  sell,  though  not  so  great 
as  that  of  men,  is  yet  far  greater  in  proportion  to  the  work 
they  are  permitted  to  do.  The  occupations  open  to  them 
become  densely  crowded,  and  the  competition  among  those 
seeking  wages  is  very  great.  In  the  very  nature  of  things, 
the  wages  are  lower  than  they  otherwise  would  be.  House- 
work, millinery  and  dressmaking,  general  sewing,  some  ser- 
vice in  shops,  fancy  work,  and  teaching  have  been  till 
recently,  for  the  most  part,  the  occupations  to  which  women 
have  been  admitted.  Because  women  must  work  in  these 
if  at  all,  the  supply  of  labor  has  become  so  great  that  the 
wages  in  them  must  be  smaller  than  if  the  demand  were  to 
the  supply  the  same  as  in  the  case  of  men. 


REMEDIES  FOR  LOW   WAGES.  1 69 

Another  obstacle  to  the  improvement  of  women's  wages 
lies  in  the  fact  that  it  is  more  difficult  for  them  to  carry 
their  labor  to  market  than  for  men.  "  While  women  have 
thus  far  more  occasion  relatively  than  men  to  move  to  theii 
market,  we  find  them  disabled  therefrom  in  a  great  measure 
by  physical  weakness,  by  timidity,  and  by  those  liabilities  to 
misconstruction,  insult,  and  outrage  which  arise  out  of  sexual 
characteristics.  Having  more  need  than  men  to  move  from 
place  to  place,  they  have  less  ability  to  do  so.  It  must  be 
remembered  that  it  is  not  a  question  merely  of  taking  a 
journey  from  home  to  a  place  where  a  '  situation '  has  already 
been  engaged ;  but  it  may  be  of  seeking  out  employment 
from  street  to  street  and  from  shop  to  shop,  by  repeated 
inquiries,  often  through  much  urgency,  and  persistency  of 
application." ' 

One  other  reason  why  women's  wages  are  lower  than 
men's  is  that  the  former  seldom  learn  trades,  or  fit  themselves 
for  permanent  callings.  For  the  most  part,  they  are  looking 
to  an  early  termination  of  any  pursuit  which  may  be  adopted. 
This  is  itself  a  partial  disqualification  for  any  vocation. 

The  principal  remedy  for  the  disadvantage  to  which  women 
are  thus  subject  is,  as  I  conceive,  the  removal  of  restrictions 
which  custom  and  a  wrong  public  sentiment  have  established 
in  respect  to  their  occupations.  That  this  is  already  con- 
stantly taking  place,  no  one  can  doubt  \  and  the  natural 
results  are  obvious.  Within  the  last  thirty  years  the  wages  of 
women  have  advanced  very  much  more  than  those  of  men. 

'  F.  A.  Walker:  The  Wages  Question,  p.  376. 


CHAPTER  VIII. 

PROFITS. 

1,  The  term  profits  has  already  been  defined  as  the  portion 
of  the  joint  product  of  labor  and  capital  which  goes  to  the 
employer.  It  is  sometimes  loosely  spoken  of  as  the  capital- 
isfs  share.  This  is  incorrect.  The  loaners  of  money,  or  of 
real  estate,  or  of  other  property,  are  capitalists ;  and  what 
they  receive  for  these  comes  under  the  heads  of  interest  and 
rent. 

The  employer  may  be  and  often  is  a  capitalist,  but  he  is 
not  always  and  necessarily  so.  The  distinction  between  the 
two  has  already  been  noted.  "  Capital  cannot  move  itself. 
Labor  cannot  command  capital,  and  therefore  has  little 
power ;  hence  the  necessity  for  an  employer  or  business-man 
to  effect  a  union,  and  put  both  in  successful  operation. 
Capital  without  labor  is  an  infant :  labor  without  capital  is 
a  cripple."  ' 

2.  The  ability  to  organize  and  manage  a  business,  and  the 
skill  involved  therein,  especially  if  there  be  much  capital  and 
many  laborers,  entitle  the  possessor  to  a  larger  share  of  the 
product  than  an  ordinary  laborer  can  command.  The  very 
])iinciple  which  is  the  basis  of  distribution,  and  from  which  the 
law  governing  it  is  evolved,  is  that  each  producer  is  entitled 
to  an  equivalent  of  the  value  by  him  created.     If  one  mao 

'  Amasa  Walker:  The  Science  of  Wealth,  p.  311. 
170 


PROFITS.  1 7 1 

can  catch  twice  as  many  fish  as  another,  or  if  one  boy  picks 
three  quarts  of  berries  while  another  picks  only  one,  evidently 
each  is  entitled  to  all  he  secures,  and  no  more.  The  girl  who 
tends  six  looms  ought  to  have  larger  compensation  than  the 
one  who  tends  but  two.  So,  if  one  man  brings  to  a  business 
a  certain  high  order  of  talent,  and  by  its  exercise  so  organizes 
and  manages  the  labor  and  the  capital  that  ten  or  twenty  times 
as  much  is  produced  as  would  be  without  such  directions, 
then  a  larger  share  of  the  result  properly  belongs  to  him  than 
to  an  ordinary  workman.  Few  men  would  put  forth  exer- 
tion simply  for  the  public  good,  especially  when  it  is  morally 
certain  that  many  would  take  advantage  of  such  action  to 
escape  toil,  and  live  upon  the  product  of  the  better  dis- 
posed. This  would  especially  be  the  case  with  those  compe- 
tent to  be  employers.  The  responsibilities  and  cares  of 
business  would  not  be  assumed  by  a  man  who  knew  that  in 
so  doing,  though  he  might  be  the  cause  of  manifold  greater 
production,  he  would  only  secure  for  himself  the  same  com- 
pensation as  an  irresponsible  laborer.  He  would  suffer  far 
less  by  declining,  than  the  rest  of  the  community ;  since  it 
depends  largely  upon  the  competent  employer  whether  there 
shall  be  plenty  of  work  at  good  wages,  or  the  opposite.  That 
the  most  competent  employers  should  secure  large  profits, 
does  not  imply  a  diminution,  but  always  an  increase,  of 
wages. 

3.  Another  element  which  enters  into  the  calculation  of 
the  just  claims  of  profits  is,  the  risk  and  uncertainty  attach- 
ing to  a  business  enterprise.  Disasters  are  liable  to  occur 
in  every  undertaking.  The  most  careful  foresight  cannot 
anticipate  some  of  these.  The  profits  of  a  business,  what- 
ever their  rate,  will  be  in  no  two  successive  years  the  same. 
Sometimes  there  will  be  positive  loss.  Hence  allowance 
must  be  made,  not  only  for  making  up  actual  losses,  but  for 


1/2  POLITICAL   ECONOMY. 

the  years  in  which  the  gains  fall  below  the  normal  rate.  A 
part  of  the  losses  can  be  calculated  with  approximate  cor- 
rectness. There  will  be  a  certain  number  of  fires,  of  ship- 
wrecks, and  of  other  disasters,  within  a  certain  period  of 
time,  and  in  a  given  number  of  enterprises.  Insurance 
companies  base  their  calculations  upon  such  data.  The  in- 
surance premiums  themselves  are  a  part  of  the  expense  of 
the  business,  and  must  be  deducted  before  the  proportion 
of  profits  can  be  determined.  But  there  are  other  liabilities 
which  are  quite  incalculable,  —  the  failure  of  crops,  and  dis- 
asters in  mining  operations,  diminishing  the  material  to  be 
worked  up  ;  financial  revulsions,  afiecting  trade  and  decreas- 
ing consumption ;  and  a  thousand  other  incidents  and  influ- 
ences. 

We  have  seen  that  the  doctrine  largely  prevailing  concern- 
ing wages  is,  that  they  are  paid  by  capital.  In  estimating 
profits  on  this  hypothesis,  we  should  naturally  deduct  from 
the  gross  profit  what  had  been  paid  out  for  wages,  to  replace 
capital  so  expended.  Then,  after  subtracting  all  expendi- 
tures for  repairs,  wear  and  tear  of  machinery,  insurance, 
interest,  losses,  etc.,  the  remainder  would  ^e  profits.  There 
is  a  doctrine  growing  .out  of  the  above,  and  going  in  general 
with  that  of  the  wages-fund,  that  profits  are  inversely  as 
wages.  Yet,  if  the  conclusions  at  whicli  we  have  arrived  on 
several  points  are  true,  this  is  not  so.  It  is,  rather,  as  Pro- 
fessor Walker  teaches,  that  profits  are  in  no  case,  nor  in  any 
part,  taken  from  wages.  The  probable  truth  of  the  matter  is, 
that  the  larger  either  is,  —  other  things  being  equal,  —  the 
larger  will  be  the  other. 

4.  It  has  been  stated,  that  in  this  country  we  have,  strictly 
speaking,  no  monopolies.  AVe  find  something  like  an  excep- 
tion to  this  in  the  case  oi patent  and  copy  rights.  These  are 
held  to  be  both  just  and  economical.     It  has  been  urged 


PROFITS.  1 73 

against  this  view,  that  such  privileges  are  of  no  real  advan- 
tage to  the  community ;  that  a  benevolent  man  will  delight 
to  confer  upon  society  every  such  boon  of  which  he  has  been 
the  creator ;  that  the  honor  and  fame  of  the  invention  are 
a  sufficient  inducement  to  the  exercise  of  the  abihty  implied  ; 
that  many  of  these  inventions  are  accidental,  and  cost  the 
inventor  nothing ;  that,  in  many  instances,  devices  are  sought 
as  an  aid  in  the  particular  work  of  the  originator,  and  that 
the  advantage  thus  gained  is  a  sufficient  incentive.  Hence 
it  is  inferred  that  the  only  economical  reason  for  exclusive 
privilege  is  removed,  since  there  would  be  as  many  useful 
inventions  without  as  with  it. 

But,  on  the  other  hand,  it  must  be  evident  that  a  majority 
of  the  inventions  which  aid  in  the  multiplication  of  wealth 
involve  sacrifices  which  would  never  be  incurred  but  for  the 
hope  of  reward  ;  and  that,  even  in  the  case  of  those  who  are 
mainly  moved  to  their  undertaking  by  public  spirit,  this  hope 
adds  a  stimulus  without  which,  in  many  instances,  the  enter- 
prise would  fail.  Sometimes  a  man  has  spent  a  large  for- 
tune, and  given  many  years  to  the  devising  of  plans  and 
instruments,  by  which  humanity  will  be  benefited  for  ages 
to  come.  To  such  a  man,  no  compensation  likely  to  be 
bestowed  will  be  more  than  a  small  fraction  of  the  good 
conferred. 

The  case  of  the  author  is  similar  to  that  of  the  inventor. 
If,  by  diligence  and  self-denial,  combined  with  a  certain 
ability,  he  has  produced  a  book  of  value,  he  is  entitled  to 
remuneration  for  his  labor.  But,  if  there  be  no  positive  re- 
striction, any  one  may  copy  the  thoughts  of  the  author,  and 
dispose  of  them  as  his  own.  This  appropriation  of  the  im- 
material productions  of  others  is  prevented  by  the  provis- 
ion known  as  the  copyright  law. 


CHAPTER  IX. 

INTEREST, 

1.  Interest  is  the  compensation  paid  for  the  use  of  capi- 
tal in  the  form  of  money.  Strictly  speaking,  when  capital 
in  any  other  form  is  loaned,  the  compensation  for  its  use  is 
reckoned  as  rent.  But  sometimes  the  loan  is  of  other  prop- 
erty, though  regarded  as  money ;  and  so  the  compensation  is 
reckoned  as  interest.  For  instance,  a  man  buys  a  farm  for 
three  thousand  dollars.  He  is  able  to  pay  but  one  thousand 
down.  He  may  do  one  of  two  things  :  he  may  borrow  two 
thousand  dollars,  giving,  as  security,  a  mortgage  on  the  farm, 
and  with  this  and  the  thousand  dollars  of  his  own  make  the 
purchase  ;  or  he  may  pay  the  thousand  dollars,  and  for  the 
rest  give  the  former  owner  a  note  secured  by  mortgage. 
Here  he  does  not  literally  borrow  the  two  thousand  dollars ; 
but  he  borrows  two-thirds  of  the  farm,  with  the  privilege  of 
paying  for  it  at  some  future  time.  But  the  whole  arrange- 
ment is  as  if  the  buyer  had  borrowed  the  two  thousand  dol- 
lars ;  that  is,  the  unpaid-for  portion  of  the  farm  is  put  in 
the  form  of  money,  and  the  compensation  for  the  use  is 
/eckoned  not  as  rent,  but  as  interest. 

2.  The  rate  of  interest  depends  on  several  considerations  ; 
and  it  differs  in  different  countries,  as  well  as  at  different 
times  in  the  same  country.  Some  of  the  causes  determining 
this  variation  will  here  be  set  forth. 

174 


INTEREST.  175 

1.  The  rate  of  interest  is  influenced  by  the  amount  of 
money  in  circulation.  Not  that  the  rate  is  always  inversely 
as  the  amount.  Some  have  denied  that  the  amount  has  any 
thing  to  do  with  the  rate  :  others  have  asserted  that  the  rate 
is  highest  when  the  circulation  is  the  largest.  The  latter  is 
true  in  some  instances,  but  there  would  be  little  difficulty 
in  showing  that  this  is  due  to  other  causes  than  the  abun- 
dance of  money.  Money  is  like  other  things  :  in  general  it 
can  be  bought  and  sold  and  borrowed  more  cheaply  when 
it  is  abundant  than  when  it  is  scarce.  It  is  sometimes  the 
case,  that  scarcity  of  money  has  deranged  business,  paralyzed 
industry,  and  produced  general  distrust.  At  such  a  time, 
there  is  a  small  demand  for  money,  no  one  daring  to  venture 
upon  any  new  business  or  the  revival  of  an  old  one.  Under 
such  conditions,  though  a  really  small  amount  of  money  is 
in  circulation,  the  amount  relative  to  the  demand  is  large, 
and  interest  is  low. 

2.  It  depends  upon  the  profits  of  business  ;  and  this  again 
depends  upon  the  industrial  system  and  the  condition  of  the 
community.  If  there  are  but  few  occupations,  and  the 
range  of  industries  is  Hmited,  the  rate  of  profits  is  likely  to 
be  high,  and  that  of  wages  low.  In  the  infancy  of  society, 
as  we  have  seen,  the  capitalist  absorbs  both  a  very  large 
proportion  and  a  very  large  quantity  of  the  joint  product 
of  labor  and  capital.  But  as  society  advances,  and  industry 
becomes  diversified  and  labor  more  productive,  the  laborer 
receives  both  a  larger  quantity  and  a  larger  proportion  of  the 
product ;  while  the  capitalist  gets  a  smaller  proportion,  but 
a  larger  quantity.  In  accordance  with  this  law,  the  rate  of 
interest  diminishes  with  the  advance  of  society.  The  high 
rate  of  interest  in  some  parts  of  the  United  States  is  owing 
to  the  scarcity  of  capital,  the  comparatively  small  variety 
of  industries,  the  extraordinary  productiveness  of  labor,  and 


176  POLITICAL   ECONOMY. 

the  high  rate  of  profits.  The  last  two  are  closely  connected. 
Land  is  abundant,  cheap,  fertile,  and  easily  cultivated. 
Hence  a  little  money  invested  in  agriculture  gives  good 
returns.  Labor  as  well  as  money  is  scarce  :  the  product 
of  the  laborer,  in  proportion  to  his  wages,  is  greater  than 
almost  any\vhere  else.  \w  all  the  industries,  not  only  is  the 
rate  of  wages  and  of  profits  higher,  but  the  aggregate  of 
profits  is  larger.  As  it  is  this  which  determines  the  pros> 
perity  of  the  community,  the  people  are  generally  in  better 
condition  than  in  other  countries,  in  spite  of  the  high  rate 
of  interest.  Yet  we  see,  that  just  in  proportion  as  nidustry 
becomes  varied,  and  commerce  Increases,  in  any  section  of 
the  country,  the  rate  of  interest  diminishes. 

3.  The  rate  of  interest  is  affected  by  both  the  scarcity 
and  the  uncertainty  of  capital.  (<^)  If  the  people  are  vicious, 
indolent,  and  reckless  of  their  obligations,  it  will  be  unsafe 
to  invest  property  in  such  a  community ;  and  capitalists  will 
not  do  it  except  at  a  high  rate  of  interest,  {b)  The  charac- 
ter of  the  government  will  have  much  influence.  If  it  is 
weak  and  inefficient ;  if  the  laws  are  inadequate,  and  feebly 
executed ;  if  contracts  are  not  enforced,  and  crime  Is  unpun- 
ished, —  capitalists  will  not  loan,  except  on  usurious  condi- 
tions. If  the  government  is  of  the  opposite  character,  other 
things  being  equal,  the  rate  is  likely  to  be  low.  (r)  The 
general  thrift  of  the  community  has  something  to  do  with 
the  security  of  capital.  It  is  safer  in  a  community  where 
men  are  enterprising  and  public-spirited,  where  there  is  fru- 
gality and  economy,  than  in  one  of  an  opposite  character. 
A  declining  community,  where  property  is  constantly  depre- 
ciating, is  not  a  good  one  in  which  to  invest  capital. 

4.  Finally,  the  rate  of  interest  depends  on  the  facility  with 
which  the  evidences-of  debt  can  be  re-converted  into  money. 
It  is  frequently  the  case,  that  persons  have   money  which 


INTEREST.  177 

they  would  be  glad  to  loan  temporarily,  even  at  a  low  rate  : 
but  they  are  liable  to  need  it  at  any  time  ;  and  they  must 
either  keep  it  on  hand,  or  so  loan  it  that  they  can  claim  it 
again  at  the  shortest  notice.  Borrowers  will  not  be  willing 
to  pay  as  much  for  the  use  of  money  for  the  return  of  which 
they  may  be  suddenly  called  upon,  as  for  that  which  may  be 
retained  for  a  definite  and  stipulated  time.  To  many  loaners 
of  money,  it  is  also  of  the  greatest  importance  that  the  inter- 
est be  paid  regularly  and  punctually.  They  would  rather 
have  a  lower  rate,  and  have  an  assurance  in  this  respect,  than 
to  be  subject  to  uncertainty  with  a  higher  rate. 

It  is  partly  on  account  of  the  complete  security,  ready 
conversion,  and  prompt  payment  of  interest,  that  the  bonds 
of  stable  governments  are  considered  the  best  investments. 
It  is  largely  for  this  reason,  that  the  rate  of  interest  on  these 
is  lower  than  on  other  securities.  They  are  always  in  the 
market,  and  can  be  bought  with  little  difficulty  by  any  one 
who  wishes  to  invest  in  them.  They  are  as  readily  sold 
whenever  the  holder  needs  the  money  for  any  other  purpose. 


CHAPTER  X. 

RENT. 

1.  Rent,  or  the  portion  of  the  product  going  to  the  owner 
of  any  land  on  which  any  industry  depends,  has  ahvays  been 
a  subject  of  leading  importance  in  political  economy.  Yet 
what  is  strictly  signified  by  rent  is  of  less  consequence  here 
in  the  United  States  than  in  most  other  countries.  Here,  to 
a  greater  extent  than  elsewhere,  the  owner  and  the  occupier 
of  land  are  the  same  person.  The  agricultural  interest 
among  us  is  supported  mainly  by  men  who  own  farms  of 
moderate  size ;  and,  though  in  some  parts  of  the  country 
there  are  those  who  severally  hold  estates  of  thousands 
of  acres,  still  the  owners  are  usually  also  the  managers  of 
the  whole  business  of  their  plantations.  In  many  parts 
of  the  Continent  of  Europe,  and  more  largely  still  in  Asia,  the 
occupants  of  the  soil  are  not  the  owners.  The  proprietor 
leases  the  land  to  certain  parties,  who  convey  to  him  a  stipu- 
lated proportion  of  the  product.  Sometimes  this  is  paid  in 
kind,  but  frequently  there  is  a  commutation  in  money. 

It  might  seem  more  in  accordance  with  the  condition  of 
things  in  our  own  land,  to  have  discussed  this  subject  in 
another  connection.  Still,  as  rent  is  closely  connected  with 
the  occupancy  and  value  of  land,  and  as  these  subjects 
have  been  so  largely  discussed  under  this  title,  and  there  are 
so  many  both  errors  and  valuable  doctrines  that  have  been 
178 


RENT.  iy(^ 

evolved  under  this  method  of  treatment,  we  shall  probably 
get  a  better  view  of  the  phenomena  in  this  way  than  in  any 
other. 

2.  Land  is  altogether  the  most  important  instrument  and 
condition  of  wealth  which  is  furnished  to  man.  Out  of  it 
originally  come  all  the  materials  upon  which  the  labor  of 
man  can  confer  value.  Though  it  is  not  independent  of 
extraneous  conditions,  and  though  its  products  would  be 
of  small  account  without  the  co-operation  of  other  agencies, 
yet  other  things  are  more  dependent  upon  it  than  it  upon 
any  of  them. 

It  is  furnished  by  nature,  like  air  and  water  and  sunshine  ; 
but,  unlike  them  for  the  most  part,  it  can  be  appropriated. 
It  can  also  be  cultivated  as  they  cannot  It  may  not  merely 
be  made  to  produce  something,  but  its  capabilities  may 
be  indefinitely  increased.  It  is  also  capable  of  deteriora- 
tion. Like  other  instruments,  it  may  be  worn  out  and 
spoiled. 

3.  What  constitutes  value  in  land?  J  S.  Mill  and  others 
hold  that  it  has  what  is  called  a  "  monopoly  value,"  and  that 
this  makes  an  essential  difference  between  it  and  other 
property.  Commodities  have  a  value  bearing  some  sort  of 
relation  to  the  amount  of  labor  requisite  to  their  reproduc- 
tion. But  land,  it  is  said,  cannot  be  produced  by  labor ; 
hence  its  original  value  is  not  determinable  by  this  standard. 
Nor  is  it  valued  merely  according  to  the  improvements  made 
on  it.  When  a  man  purchases  a  piece  of  land,  he  is  sup- 
posed to  calculate  the  amount  of  profit  he  can  make  from  it 
by  employing  his  own  labor  or  that  of  others  upon  it.  The 
reason  for  the  peculiarities  in  the  character  of  land  is  repre- 
sented to  be,  that  certain  individuals,  having  acquired  a  com- 
mand or  control  of  the  land  in  a  country,  intercept  the 
bounty  of  nature,  and  exact  a  price  for  that  which  was  de- 


l80  POLITICAL   ECONOMY. 

signed  to  be  freely  bestowed.  This  comes,  according  to 
Mr.  Mill,  from  "  the  limitation  of  its  quantity." 

INIr.  Carey,  on  the  other  hand,  teaches  that  land  is  under 
the  same  law  as  that  which  affects  the  value  of  all  other 
commodities ;  that  whatever  value  it  has,  has  been  created 
by  labor,  and  is  to  be  estimated,  as  in  the  case  of  other  val- 
uables, by  the  amount  of  labor  which  would  be  necessary  to 
bring  it  to  its  present  condition  could  it  be  again  taken  in 
its  primitive  estate.  Land  itself,  in  its  natural  relations,  has 
no  value.  It  is  that  which  is  done  on  it,  or  in  some  relation 
to  it,  which  gives  it  value. 

4,  Ricardo's  theory  of  rent  has  been  accepted  by  a  large 
and  reputable  class  of  economists,  both  in  Great  Britain  and 
the  United  States,  for  the  last  fifty  or  sixty  years.  It  is  here 
presented  in  the  words  of  the  author. 

"  On  the  first  settling  of  a  country  in  which  there  is  an 
abundance  of  rich  and  fertile  land,  a  very  small  portion  of 
which  is  required  to  be  cultivated  for  the  support  of  the  act- 
ual population,  or  indeed  can  be  cultivated  with  the  capital 
which  the  population  can  command,  there  will  be  no  rent ; 
for  no  one  would  pay  for  the  use  of  land  when  there  was  an 
abundant  quantity  not  yet  appropriated,  and  therefore  at  the 
disposal  of  whomsoever  might  choose  to  cultivate  it.  .  .  .  If 
all  land  had  the  same  properties,  and  if  it  were  boundless  in 
quantit)'  and  uniform  in  quality,  no  charge  would  be  made 
for  its  use  unless  where  it  possessed  peculiar  advantages  of 
situation.  It  is  only,  then,  because  land  is  not  unlimited  in 
quantity'  and  uniform  in  quality,  and  because,  in  the  progress 
of  population,  land  of  an  inferior  quality  or  less  advanta- 
geously situated  is  called  into  cultivation,  that  rent  is  ever 
paid  for  the  use  of  it.  When,  in  the  progress  of  societv',  land 
of  the  second  degree  of  fertility  is  taken  into  cultivation, 
rent  immediately  commences  on  that  of  the  first  quahty; 


RENT.  l8l 

and  the  amount  of  that  rent  will  depend  on  the  difference 
in  the  quality  of  the  two  portions  of  land.  .  .  .  When  land 
of  the  third  quality  is  taken  into  cultivation,  rent  immediately 
commences  on  the  second ;  and  it  is  regulated,  as  before,  by 
the  difference  in  their  productive  power.  At  the  same  time 
the  rent  of  the  first  quality  will  rise ;  for  that  must  always 
be  above  the  rent  of  the  second  by  the  difference  bet\veen 
the  produce  which  they  yield  with  a  given  quantity  of  capi- 
tal and  labor.  With  every  step  in  the  progress  of  population 
which  obliges  a  countr}-  to  have  recourse  to  land  of  a  worse 
quahty,  to  enable  it  to  raise  its  supply  of  food,  rent  on  the 
more  fertile  land  will  nse. 

"Thus,  suppose  land  Nos.  i,  2,  3,  to  >aeld,  with  an  equal 
employment  of  capital  and  labor,  a  net  produce  of  a  hun- 
dred, ninety,  and  eighty  quarters  of  com.  In  a  new  country, 
where  there  is  an  abundance  of  fertile  land  compared  with 
the  population,  and  where,  therefore,  it  is  only  necessary  to 
cultivate  No.  i,  the  whole  net  produce  will  belong  to  the 
cultivator,  and  will  be  the  profits  of  the  stock  which  he  ad- 
vances. As  soon  as  the  population  had  so  far  increased  as 
to  make  it  necessarj'  to  cultivate  No.  2,  from  which  ninety 
quarters  only  can  be  obtained  after  supporting  the  laborers, 
rent  would  commence  on  No.  i  ;  for  either  there  must  be 
two  rates  of  profit  for  agricultural  capital,  or  ten  quarters 
must  be  withdrawn  from  the  produce  of  No.  i,  for  some 
other  purpose.  Whether  the  proprietor  of  the  land  or  some 
other  person  cultivates  No.  i,  these  ten  quarters  would 
equally  constitute  rent :  for  the  cultivator  of  No.  2  would  get 
the  same  result  from  his  capital,  whether  he  cultivated  No.  i 
paying  ten  quarters  for  rent,  or  continued  to  cultivate  No.  2 
paying  no  rent.  In  the  same  manner  it  might  be  showm,  that, 
when  No.  3  is  brought  into  cultivation,  the  rent  of  No.  2 
must  be  ten  quarters  or  the  value  of  ten  quarters,  whilst  the 


1 82  P0LI7YCAL   ECONOMY. 

rent  of  No.  i  would  rise  to  twenty  quarters ;  for  the  cultiva- 
tor of  No.  3  would  have  the  same  profit,  whether  he  paid 
twenty  quarters  for  the  rent  of  No.  i,  ten  quarters  for  the 
rent  of  No.  2,  or  cultivated  No.  3  free  of  rent." 

5.  If  this  doctrine  be  true,  then  there  must  follow  from 
it  certain  very  important  consequences.  Prominent  among 
these  would  be  that  of  the  increasing  ratio  of  rent  to  labor. 
As  population  increases,  it  is  compelled  to  occupy  always 
the  inferior  soils,  so  long  as  they  can  be  found  of  sufficient 
fertility  to  yield  a  bare  subsistence  to  the  cultivator.  It  must 
thus  follow  that  rent,  or  the  proportion  of  the  product  going 
to  the  owner  of  the  land,  is  always  increasing ;  while  that  of 
the  laborer  is  always  diminishing  as  population  increases. 
This,  of  course,  is  diametrically  opposed  to  the  doctrine  here- 
tofore developed,  that,  in  an  advancing  community,  labor  is 
always  receiving  in  increasing  proportion  of  the  joint  prod- 
uct of  labor  and  capital. 

6.  It  is  said  that  the  increase  of  wealth,  and  the  improve- 
ments in  the  methods  and  instruments  of  production,  retard 
the  operation  of  the  law.  But  this  improvement,  which  is 
implied  in  the  progress  of  civilization,  is  but  a  part  of  the 
general  law.  It  is  in  the  very  nature  of  things,  that  up  to  a 
certain  limit,  as  men  increase  in  number,  there  is  a  more  than 
proportional  increase  in  their  power  over  nature.'  By  com- 
bination, a  dozen  men  can  often  produce  more  than  a  hun- 
dred working  separately.  Association  also  tends  to  put  each 
individual  in  possession  of  many  of  the  advantages  acquired 
by  all  the  others.  It  increases  the  possibilities,  the  efficiency, 
and  the  scope  of  education.  All  these  results  of  increase 
of  numbers  cause  multiplied  discoveries  of  new  forces  of  na- 

'  Analogy  would  teach  us,  that  it  is  a  part  of  the  more  general  law,  that,  as  this 
limit  is  approached,  the  increase  of  population  diminishes,  and,  when  it  is  reached,  the 
increase  ceases. 


RENT.  183 

ture,  and  lead  to  their  manifold  application  in  the  industries, 
till  production  is  enhanced  incalculably. 

7.  If  the  Ricardo  theory  be  correct,  we  ought  to  find  each 
generation  of  laborers  worse  fed,  housed,  and  clad  than  their 
predecessors.  Mr.  E.  P.  Smith  '  gives  in  tabulated  form  an 
illustration  of  the  operation  of  the  supposed  law.  We  have 
space  only  for  results.  But  suppose  a  moderately  populated 
territory,  with  a  given  amount  of  produce,  and  allowing  a  cer- 
tain natural  and  uniform  rate  of  increase  of  population  :  it 
would  be  found  at  the  end  of  a  specified  time,  say  two  hun- 
dred years,  that  the  "  population  would  have  multiplied  two 
hundred  and  fifty-six  times,  food  but  eighty  times ;  so  that, 
upon  equal  partition,  each  person  would  obtain  a  little  less 
than  one-third  as  much  food  as  his  ancestors  enjoyed  two 
centuries  before.  The  community,  to  procure  the  same 
average  quantity  of  food  as  its  progenitors,  would  require 
three  times  as  much  land  in  proportion  to  its  numbers,  and 
thus,  in  the  same  degree,  be  dispersed  over  greater  spaces, 
and  placed  at  greater  distances  from  each  other." 

That  the  facts  concerning  population  and  sustenance  are 
altogether  the  reverse  of  this,  has  been  illustrated  in  two  or 
three  different  ways.  The  population  of  every  civilized  na- 
tion has  greatly  increased  within  the  last  five  hundred  years. 
The  number  of  the  tillers  of  the  soil  has  also  increased.  But 
in  neither  case  has  the  increase  been  so  great  as  that  of  the 
produce.  The  following  figures  from  the  tables  of  M.  De 
Jonnes  of  the  statistical  bureau  of  France,  tell  the  same  story 
that  is  repeated  in  so  many  other  ways  :  — 

•  Manual  of  Political  Economy,  pp.  54-56. 


1 84 


POLITICAL   ECONOMY. 


Total 
Population. 

Agricultural 
Population. 

Paid  to 

Agricultural 

Laborers. 

Total  Product. 

Balance  for 

Remainder  of 

Population. 

1700 
1840 

19,500,000 
36,000,000 

15,000,000 
27,000,000 

Francs. 
458,000,000 
3,016,000,000 

Francs. 
1,308,000,000 
5,025,000,000 

Francs. 
859,000,000 
2,000,000,000 

It  will  be  seen,  that,  though  between  the  two  dates  given 
the  population  had  not  doubled,  the  produce  had  nearly 
quadrupled  ;  and,  though  the  agricultural  population  had  in- 
creased less  than  a  hundred  per  cent,  they  had  six  times 
as  much  as  before,  while  the  remainder  of  the  population 
had  a  little  more  than  twice  as  much.' 

8.  The  grand  fallacy  in  this  theory,  as  claimed  by  Mr. 
Carey,  lies  in  the  assumption  that  men  select  at  first,  for  agri- 
cultural purposes,  the  richest  and  most  productive  land. 
This  assumption  is  not  unnatural ;  and  yet,  as  matter  of  fact, 
it  appears  to  be  incorrect.  It  is  doubtless  true  that  a  person 
of  ordinary  judgment,  having  reference  only  to  immediate 
returns,  and  having  the  choice  of  two  tracts  of  land  equally 
advantageous  in  situation,  but  of  which,  with  the  same  out- 
lay, one  would  yield  twenty  bushels  to  the  acre,  and  the  other 
only  ten,  would  choose  the  former.  Other  things  being 
equal,  men  would  select  for  cultivation  those  lands  which 
would  yield  the  largest  returns  to  a  given  amount  of  labor. 
Yet  Mr.  Carey  has  shown,  by  examples  from  almost  every  part 
of  the  habitable  world,  that  the  most  productive  lands  are 
very  seldom  those  first  selected  for  cultivation.  The  range 
of  instances  is  so  extensive,  and  the  variety  of  circumstances 
so  great,  while  the  fact  is  so  uniform,  of  the  non-occupation 
of  the  richer  soils  before  an  advanced  stage  of  civilization  is 

*  E.  P,  Smith's  Manual,  p.  98. 


RENT.  185 

reached,  and  the  population  greatly  multiplied,  that  the  argu- 
ment is  of  very  great  weight. 

Nor  is  this  at  all  unaccountable.  There  is  a  satisfactory 
and  easily  apprehensible  reason  for  it.  The  richest  and 
most  productive  soils  are  almost  invariably  those  most  diffi- 
cult of  cultivation.  When  a  new  country  begins  to  be  settled, 
the  population  is  usually  small  and  much  scattered  :  men 
cannot  easily  combine,  and  their  capital  is  scanty.  They  are 
compelled  to  select  the  thinner  soils,  for  the  reason  that  they 
are  the  more  easily  cultivated.  To  go  into  the  thick  forests, 
where  the  soil  is  rich  and  heavy,  and  the  large  trees  are 
densely  crowded  together,  would  be  impossible  \  as,  before 
such  land  could  be  rendered  productive,  the  people  might 
perish  with  hunger.  Taking  up  such  soils  as  they  are  able 
to  subdue  with  the  means  at  their  disposal,  obtaining  from 
these  enough  to  support  life  and  something  more,  they  may 
gradually  invade  the  heavier  soils.  As  the  number  increases, 
they  apply  themselves  to  the  still  richer  lands,  and  always 
with  proportionally  greater  returns  ;  till,  capital  increasing  and 
means  multiplying,  they  are  able  to  enter  upon  and  subdue 
the  most  productive  portions  of  the  territory  to  which  they 
have  access.  But  this  is  not  a  rapid  process.  Up  to  this 
present  time,  in  all  civilized  nations  some  of  the  most  pro- 
ductive lands  are  not  yet  occupied.  The  largest  returns  to 
a  given  amount  of  labor  even  now  in  England  are  from  lands 
which  have  been  brought  fully  under  cultivation  far  within 
the  present  century. 

9,  It  would  seem  to  follow  from  this  theory,  that  the  value 
of  land  arises  not  from  the  fact  that  all  additions  to  the  popu- 
lation after  a  certain  time  must  resort  to  a  less  productive 
soil,  but  from  the  same  facts  which  constitute  a  condition  of 
all  other  value ;  namely,  the  labor  bestowed  upon  the  com- 
modity.    It  is  also  highly  probable  that  the  same  general  law 


1 86  POLITICAL   ECONOMY. 

is  operative  here  as  in  relation  to  wages  and  interest.  The 
laborer  is  always  receiving  both  a  larger  proportion  and  a 
larger  quantity  of  the  joint  product  of  labor  and  capital; 
while  the  capitalist,  though  receiving  a  larger  quantity,  gets 
only  a  smaller  proportion.  It  is,  then,  obvious,  that,  as  a 
real  civilization  is  developed,  the  tendency  is  always  to 
equality  among  men.  This  may  be  retarded  by  the  appli- 
cation of  false  principles  and  by  bad  legislation.  But  the 
great  economical  laws  remain  the  same,  and,  if  not  violated, 
will  work  out  beneficent  results. 

10.  Rent  —  or  what,  for  our  purpose,  may  be  considered 
the  same  thing,  the  value  of  land  —  is  influenced  by  several 
considerations. 

1.  The  fertility  of  the  soil  is  an  important  element.  One 
would  be  willing  to  pay  a  higher  price  for  land,  that,  with  a 
given  outlay,  would  yield  the  larger  returns,  other  things 
being  equal.  But  this  consideration  will  be  materially  modi- 
fied by  those  which  follow. 

2.  The  facility  or  difficulty  of  cultivation  makes  a  second 
condition.  If,  other  things  being  equal,  a  certain  tract  will 
require  the  labor  of  four  men,  and  will  produce  only  fifty  per 
cent  more  than  another,  which  can  be  carried  on  by  two  men, 
the  latter  will  be  the  more  valuable.  Yet  this  is  also  subject 
to  modification.  Here  is  a  piece  of  land  of  exceedingly 
rich  soil,  but  covered  with  very  heavy  timber,  or  requiring 
drainage  ;  in  either  case  involving  great  expenditure.  The 
dry  prairie  in  the  neighborhood  needs  but  little  labor  to 
render  it  largely  productive.  Five  times  the  amount  of  ex- 
penditure which  is  bestowed  on  the  latter  might  not,  though 
repeated  for  two  years,  render  the  former  directly  capable 
of  equal  returns ;  but  afterwards,  and  for  all  time  to  come, 
it  may  yield  three  or  four  times  as  much,  to  the  same  amount 
of  labor,  as  the  other.     It  is  evident  that  the  land  which  is 


RENT.  187 

at  first  capable  of  the  less  profitable  returns,  might  be  the 
more  valuable. 

3.  The  third  consideration  is  that  of  situation.  The  value 
of  land  depends  principally  on  the  value  of  its  products ; 
and  the  cost  of  bringing  the  latter  to  market  is  an  important 
element  in  estimating  this  value.  Land  near  a  city  or  large 
town  may  be  worth  two  hundred  dollars  an  acre  ;  while  pre- 
cisely the  same  quality  of  land,  one  hundred  miles  distant, 
and  with  no  means  of  transportation  except  by  common 
roads,  may  be  worth  no  more  than  five  or  ten  dollars.  There 
arc  also  other  modifying  elements.  The  more  ready  the 
access  to  the  market,  the  more  largely  can  all  the  capabilities 
of  the  soil  be  utilized.  In  the  vicinity  of  great  cities,  a  large 
amount  of  marketable  produce  can  be  raised  at  an  immense 
profit,  which  it  would  pay  nothing  to  cultivate  at  any  con- 
siderable distance.  Then,  too,  the  nearer  the  land  is  to  a 
densely  populated  town,  the  greater  the  facility  of  fertiliza- 
tion. We  have  seen  how  universal  is  the  tendency  to  dete- 
rioration in  land  in  a  jiurcly  agricultural  region.  It  needs 
to  be  in  such  relation  to  a  large  market-town,  that  a  large 
proportion  of  what  is  produced  on  the  farm  can  also  be 
consumed  on  it,  or  that  the  equivalent  of  what  is  produced 
can  be  returned.  Sometimes  the  capabilities  of  the  soil  are 
thus  increased  three,  five,  or  even  ten  fold. 


CHAPTER  XI. 


TAXATION. 


1.  One  of  the  indispensable  conditions  of  a  prosperous 
community  is  the  maintenance  of  order  and  justice  between 
the  members  of  the  body  poHtic.  There  must  be  protection 
against  criminally  disposed  persons,  and  against  all  sorts  of 
fraud  and  violence.  The  weak  and  poor  and  ignorant  must 
not  be  allowed  to  be  put  at  a  disadvantage  in  contests  with 
the  strong  and  rich  and  intelligent ;  and  there  must  be  some 
way  to  decide  questions  of  law  and  equity.  Now,  order 
cannot  be  maintained  by  each  man's  undertaking  to  execute 
justice  for  himself.  It  must  be  done  by  society  in  its  cor- 
porate capacity.  But  in  order  to  this,  on  the  principle  of 
the  division  of  labor,  as  well  as  on  other  grounds,  the  duty 
is  delegated  to  an  agency  or  set  of  agents  appointed  for  this 
purpose.  This  agency  is  the  Government,  and  consists  of  a 
number  of  men  acting  in  a  variety  of  capacities. 

2,  Now,  if  these  functionaries  are  a  condition  of  any 
considerable  production,  then,  clearly,  a  share  of  the  wealth 
created  belongs  to  them  under  the  law  of  distribution.  This 
is  to  be  contributed  by  all  who  share  .in  the  benefit  of  the 
agency.  The  aggregate  constitutes  what  is  called  the  reve- 
nue of  the  Government.  Its  apportionment  among  the  mem- 
bers of  the  community  is  known  under  the  general  name  of 

taxation. 
i88 


TAX  A  TION.  1 89 

• 

The  most  equable  method  of  levying  the  taxes  is  a  subject 
upon  which  a  vast  variety  of  opinions  exists ;  and,  though 
great  improvements  have  been  made  in  the  devices  employed, 
they  are  still  very  imperfect,  and  public  men  are  far  from 
agreement  in  regard  to  them.  • 

3.  It  is  a  question  of  some  importance,  whether  a  man 
should  be  taxed  according  to  the  amount  of  his  accumula- 
tions, or  of  his  revenues.  A»  man  may  have  a  large  estate 
in  land  or  other  property,  which,  owing  to  various  circum- 
stances, is  bringing  him  in  very  little  or  even  no  revenue. 
Another  has  no  property  at  all,  but  he  has  a  large  income 
from  his  profession  or  occupation.  If  these  both  pay  ac- 
cording to  property,  the  latter  will  contribute  nothing,  while 
the  former  will  be  heavily  taxed.  If  they  pay  according  to 
revenue,  the  latter  will  pay  largely,  and  the  former  contribute 
nothing.  Again,  there  are  some  so  situated  that  they  will 
have  a /^?;^^//^a/ moderate  income  ;  while  others  have  a  much 
larger  income,  which,  however,  depends  upon  the  continu- 
ance of  health,  business  prosperity,  or  some  other  contin- 
gency which  is  wholly  uncertain.  If  the  tax  is  simply 
according  to  revenue,  and  not  property,  here  would  be  an 
instance  of  great  inequality. 

4.  Another  question  arises  here,  which  is  not  always 
squarely  met  by  writers  on  this  subject.  Does  genuine 
economy  require  a  unifo7-ni  systej7i  of  taxation,  according  to 
either  property  or  income  ?  The  theory  of  taxation,  generally 
accepted,  implies  the  affirmative  of  the  above  question.  But 
it  is  doubtful  if  any  civilized  government  ever  really  at- 
tempts to  apply  it.  The  economical  instincts  of  men  lead 
them  to  repudiate  it  in  practice.  Unquestionably,  what  men 
desire  in  respect  to  taxation  is  a  system  which  will  give  the 
needed  public  revenue,  at  the  least  possible  expense  on  the 
whole,  and  with  a  just  distribution  of  the  burden.     But  it 


IQO  POLITICAL   ECONOMY. 

is  clearly  possible,  that,  by  attempting  a  literal  and  arith- 
metical apportionment,  many  persons  may  be  reduced  to 
poverty,  and  others  to  pauperism  ;  so  that  some  who  would 
otherwise  help  to  bear  the  burden  are  prevented  from  doing 
so,  and  others  are  made  to  add  to  it.  It  is  on  this  account 
that  nearly  all  civilized  nations  make  certain  exemptions  of 
the  property  of  the  poor  from  taxation,  —  certain  articles 
of  prime  necessity  about  the  house,  certain  tools  used  on 
the  farm  or  in  the  trades,  certain  domestic  animals,  and 
other  property  of  a  similar  kind.  This  is  not  done  from 
mere  benevolence,  but  simply  as  a  measure  of  economy. 
It  is  true  that  these  items  are  exempt  in  the  case  of  the  rich 
as  well  as  of  the  poor  man ;  but,  obviously,  the  substantial 
advantage  accrues  to  the  latter,  as  it  was  intended  to  do. 
They  comprise  but  a  small  fraction  of  the  wealth  of  the 
former ;  but  they  are  sometimes  the  whole,  and  often  the 
chief  part,  of  the  poor  man's  goods.  By  such  exemption, 
thousands  are  encouraged,  and  prevented  from  losing  hope 
and  self-respect  and  independence,  who  otherwise  might 
become  a  burden  to  society,  thus  involving  an  expense  far 
greater  than  the  amount  of  the  small  tax  they  would  pay  if 
there  were  no  exemption. 

There  is  another  custom,  nearly  universal,  which  is  not  in 
harmony  with  the  principle  of  uniform  taxation.  It  is  that 
which  prevails  in  most  modern  nations,  of  taxing  such  kinds 
of  business  and  such  products  as  are  admitted  to  be  perni- 
cious in  their  effects  on  society,  at  a  higher  rate  than  other 
kinds  of  business  and  products  :  spirituous  liquors  and  to- 
bacco come  into  this  category.  The  reasonableness  of  this 
policy  is  obvious.  If  the  tax  is  so  heavy  as  to  discourage  or 
diminish  the  use  of  these  articles,  no  person  really  suffers  : 
on  the  contrary,  it  is  scarcely  disputed  by  any  candid  man, 
that  great  benefits  would  ensue.     If  diminished  productive- 


TAXATION.  191 

ness,  if  pauperism  and  crime,  come  from  the  use  of  these 
articles,  then  is  the  community  richer  from  any  cause  tend- 
ing to  lessen  the  consumption.  If  a  larger  proportional  tax 
will  do  this,  it  will  both  increase  the  revenue  and  diminish 
the  burden. 

A  similar  discrimination  is  frequently  made  in  respect  to 
what  are  called  luxuries.  If  a  heavy  tax  should  be  put  upon 
the  rich  man's  costly  clothes,  jewellery,  carriages,  and  expen- 
sive furniture,  he  would  not  greatly  suffer  if  he  should  buy 
somewhat  less  of  them.  But  if  the  poor  man's  bread  and 
meat  and  the  implements  of  his  daily  toil  are  taxed,  he  can- 
not forego  the  expense  of  them  without  serious  damage. 

There  is  still  another  discrimination  which  civilized  nations 
usually  make.  All  property  devoted  to  the  public  good,  and 
which  is  used  for  purposes  tending  to  diminish  the  evils 
which  occasion  a  large  proportion  of  the  expenses  of  the 
government,  is  exempted.  Such  especially  are  churches  and 
schools,  and  charitable  and  benevolent  institutions.  This 
exemption,  also,  is  prompted  by  a  wise  economy.  It  renders 
the  burdens  of  taxation  lighter  instead  of  heavier,  and  min- 
isters largely  to  an  increase,  instead  of  a  decrease,  of  public 
wealth. 

5.  Taxes  are  divided  into  direct  and  i7idirect.  Direct  taxa- 
tion is  when  the  tax  is  paid  by  the  person  upon  whom  it  is 
levied.  In  indirect  taxation  the  tax  is  levied  on  one  person, 
but  really  paid  by  another.  Taxes  upon  real  estate,  tools, 
machinery,  domestic  animals,  etc.,  are  direct  taxes.  They 
are  supposed  to  be  paid  by  the  o^vner  of  the  property  taxed. 
Yet  even  here  the  tax  is  sometimes  really  paid  by  another 
party  than  the  real  owner. 

Indirect  taxes  are  levied  on  commodities  ;  and  the  amount 
of  the  tax  is  added  to  the  price  of  the  commodity,  and  thus 
paid  by  the  consumer.    For  instance,  under  the  internal  rev- 


192  POLITICAL    ECONOMY. 

enue  system  adopted  during  the  civil  war,  there  was  a  stamp- 
tax  of  one  cent  on  every  bunch  of  matches.  The  consumers 
paid  a  cent  more  for  each  bunch  of  matches  than  they  other- 
wise would.  The  same  is  true  of  duties  under  a  revenue 
tariff.  If  there  be  a  duty  of  ten  cents  a  pound  on  coffee, 
though  nominally  paid  by  the  importer,  it  is  added  to  the 
price  of  the  article,  and  thus  finally  comes  from  the  consumer. 

6.  There  is  some  difference  of  opmion  as  to  the  compara- 
tive merits  of  direct  and  indirect  taxation.  It  has  been 
claimed  in  favor  of  the  latter,  ( i )  that  it  is  imperceptible,  and 
thus  avoids  exciting  dissatisfaction  in  the  payers  ;  (2)  that  it 
is  paid  by  each  according  to  consumption,  and  that  therefore 
those  who  consume  less  of  the  taxed  article  pay  less  of  the 
tax;  and  (3)  that  it  is  divided  into  such  minute  portions  as 
to  make  the  payment  easier. 

It  is  true  that  the  payment  of  the  tax  on  commodities  is 
not  generally  realized  with  much  distinctness.  It  is  regarded 
as  a  part  of  the  price  of  the  article,  and  is  set  down  in  the 
account  of  expenses  as  such.  It  is  also  true  that  the  payment 
of  the  tax  in  minute  portions  prevents  the  conception  of  its 
real  amount.  Still  the  aggregate  of  all  the  items  is  none 
the  less  a  burden  because  it  is  distributed  over  much  time, 
and  it  is  just  as  actually  a  subtraction  from  the  wealth  of  the 
individual. 

But  these  very  facts  are  among  the  real  and  grave  objec- 
tions to  the  method.  Indirect  taxation  is  easier  for  the 
government,  and  less  obnoxious  to  the  people.  On  this 
account  the  government  is  less  likely  to  be  frugal  and  eco- 
nomical than  if  the  revenues  disbursed  came  more  reluctantly 
from  more  conscious  contributors.  Where  the  people  are 
taxed  directly,  they  know  the  full  amount  of  the  cost  of  the 
government  to  them.  Under  such  circumstances,  they  are 
far  more  likely  to  scrutinize  the  acts  of  their  agents,  and  hold 


TAX  A  TION. 


193 


them  to  a  strict  account.  It  would  make  a  great  difference 
in  the  conduct  of  pubhc  affairs  if  every  man  knew  just  how 
much  of  the  aggregate  cost  he  had  to  pay. 

It  is  also  to  be  said  concerning  this  method,  that  it  is  far 
more  likely  to  be  unequal  than  direct  taxation.  The  duties 
imposed,  whether  excises  or  customs,  will  be  paid  by  the  con- 
sumer in  proportion  to  the  amount  consumed.  But  if  they 
be  levied  upon  the  necessaries  of  life,  or  even  its  common 
conveniences,  the  poor  man  must  pay  nearly  as  much  as  the 
rich.  It  is  very  easily  said,  that  each  pays  in  proportion 
to  his  consumption,  and  that  he  may  diminish  his  tax  by 
diminishing  his  consumption.  But  is  it  fair  to  compel  one 
to  the  alternative  of  abstinence  from  the  ordinary  comforts 
of  life,  or  the  payment  of  several  times  his  proportion  towards 
the  support  of  the  government?  Is  it  the  part  of  a  wise 
economy  ? 

A  partial  remedy  for  this  inequality  is  found  in  the  taxation 
of  luxuries  which  the  rich  use,  but  which  the  poor  do  not. 
Still,  if  any  part  of  the  revenue,  say  one-half  or  one-quarter, 
is  raised  from  articles  in  most  common  use,  the  poor  would 
evidently  have  to  pay  an  undue  proportion  of  that  part. 

7.  There  are  several  forms  of  direct  taxation.  The  fol- 
lowing are  the  principal :  i .  The  i?icome-tax.  Abstractly  this 
is  the  fairest  and  most  equable  of  all  the  forms  of  raising 
a  revenue.  Under  this  method,  equality  of  taxation,  so  far 
as  that  is  desirable,  would  be  more  closely  approximated  than 
under  any  other.  Still,  it  is  not  popular,  and  in  recent  times 
governments  rarely  resort  to  it.  That  a  method  so  fair  and 
just  should  be  so  unpopular  and  so  little  used,  is  singular. 
Probably  it  is  partly  for  the  same  reason  that  indirect  is 
preferred  to  direct  taxation.  People  would  rather  pay  their 
taxes  without  knowing  it.  It  is  also  objectionable  by  reason 
of  its  inquisitorial  character.     Business-men  do  not  Uke  to 


194  POLITICAL   ECONOMY. 

have  their  affairs  examined  by  public  officers.  There  is 
much  opportunity  for  fraud ;  and  thus,  while  dishonest  men 
escape  the  payment  of  a  large  proportion  of  what  is  justly 
due  from  them,  men  of  integrity  have  to  pay  more  than  their 
share.  The  situation  of  two  persons  having  the  same  income 
is  often  so  different,  that  the  tax  may  be  far  more  burden- 
some to  one  than  to  the  other.  These  and  some  other  rea- 
sons render  the  method  unpopular. 

2.  The  second  method  of  direct  taxation  is  that  of  assess- 
ing the  whole  property,  real  and  personal,  according  to  its 
estimated  value.  This,  with  some  exceptions  soon  to  be 
noted,  is,  if  fairly  carried  out,  the  most  equable  of  any  save 
that  of  the  income-tax.  It  is  generally  according  to  one's 
ability ;  and,  though  one's  revenues  are  not  always  propor- 
tional to  one's  property,  there  are  often  some  partial  com- 
pensations for  this.  Still,  evidently  there  can  be  no  absolute 
equality. 

The  exceptions  referred  to  are  as  follows  :  First,  there  are 
the  exemptions  mentioned  in  section  4  :  these  are  recog- 
nized by  all  really  enlightened  states,  and  do  not  need  to  be 
further  discussed.  Secondly,  all  property  devoted  to  the 
public  use,  and  from  which  the  holders  receive  no  revenue  : 
this  principle,  too,  has  been  examined,  and  the  reasons  in 
its  favor  set  forth ;  it  appears  to  be  a  principle  of  sound 
economy  on  the  whole,  and  one  diminishing,  instead  of  in- 
creasing, the  burden  of  taxation. 

There  is,  however,  much  difficulty  in  adjusting  this  method, 
mainly  because  a  considerable  portion  of  the  wealth  of  a 
community  exists  in  invisible  and  intangible  forms,  and  can 
thus  be  easily  concealed.  Property  is  also  liable  to  double 
taxation,  as  in  the  case  of  mortgages.  In  some  of  the  States, 
the  mortgagor  is  required  to  pay  the  tax  on  the  whole  prop- 
erty ;  while  at  the  same  time  the  mortgagee  is  taxed  for  the 
portion  mortgaged.    This  is  manifesdy  unjust. 


TAXATION.  195 

But,  aside  from  this,  there  are  great  difficulties  in  ascer- 
taining all  the  personal  property ;  and,  unless  some  method 
can  be  devised  for  doing  this,  every  attempt  to  tax  all  prop- 
erty will  be  nugatory.  According  to  the  best  information 
available,  it  appears,  that,  in  the  State  of  New  York,  only 
about  fifteen  per  cent  of  the  actual  value  of  the  personal 
property  is  returned  by  the  assessors,  and  taxed.  The  same 
is  probably  true  in  some  other  States. 

8.  For  these  reasons,  it  has  been  advised  by  eminent 
writers,  that  a  system  of  taxation,  based  wholly  on  expend- 
iture, should  be  substituted  for  all  those  based  on  property. 
This  need  not  be  calculated  by  any  detailed  or  itemized  esti- 
mate, but  as  indicated  by  a  single  item  ;  namely,  that  of  rent. 
It  is  averred,  that  there  is  no  surer  index  of  a  man's  pecuniary 
ability  than  that  found  in  this  item  of  his  expenditures.  In 
the  case  of  those  who  live  in  houses  of  their  own,  the  rent 
of  the  house  is  to  be  estimated  by  that  of  other  similar  resi- 
dences. This  would  leave  untaxed  all  personal  property, 
except  that  of  certain  corporations  whose  property-value  it 
is  easy  to  determine. 

Probably  this  plan,  like  many  others,  would  be  found 
greatly  faulty  ;  and  it  is  doubtful  if  any  system  can  be  de- 
vised which  will  commend  itself  as  very  nearly  equable. 


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